Summit Ministries

By Ronald H. Nash

This essay will argue that there is no inconsistency between concern with a sound theory of money and banking and the properly informed concerns of Christians who wish to be faithful to the Biblical message:

Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. For where your treasure is, there your heart will be also. (Matthew 6:19-21, New International Version of the Bible).

Christians have a number of obvious obligations to other people. They have a duty to share their faith, that is, to tell others what God, through Christ, has done for his people. But they also have a Christian obligation to put their faith into practice within the social sphere. When I become aware of evils in society, I have a Christian obligation to speak out, to try to persuade others that certain activities in society are wrong. And I have the duty to act in ways that will ease or eliminate those social evils. [1] The Christian faith is not only a religion that tells us how we may find peace with God; it is also a total world and life view that holds implications for every area of life. [2] These implications touch such supposedly secular areas of life as politics and economics. [3]

We are here to talk about ways in which governments around the world cause great moral and social evil through their monetary and banking policies. Such governments do enormous harm to the middle class through the games they play with their nation's money. Obviously, such governmental policies will result in even greater injury to poor people.

But economics is more than bad theory. Bad economics always results in political and economic practices that injure the poor. Christians need to realize that a proper fulfillment of their Christian obligations includes taking action against harmful social policies, which will include the kinds of theories about money and banking that I'll be discussing throughout this paper. It should be noted that one of the governments that follows such policies is the United States.

There are at least two sets of reasons why the subject of this essay ought to be important to committed, thinking Christians. The first set of reasons can be subsumed under the word truth. Christianity is a religion that takes truth seriously. [4] Whether or not a belief or practice has any significant effect on other humans, a reflective Christian will want to be sure that his beliefs on any subject are true. This concern with the truth must go beyond religious, spiritual, and moral matters and include areas of life that some Christians regard as less important because they are "secular."

The Christian's inescapable obligation to discover and follow truth also entails a duty to interpret the Bible correctly. A number of recent publications by Christians whose sincerity need not be doubted clearly misinterpret and then misuse the Bible in the service of eccentric social and political theories. One example of such a book is Jacques Ellul's Money and Power. [5] Ellul is a highly regarded European Christian who has authored many fine books over the years. His Money and Power is one regrettable exception to his otherwise fine track record.

One central claim of Ellul's book is that money is intrinsically evil. Ellul's thesis, however, is quite amazing when one realizes that it appears in a book that requires thousands of exchanges of this intrinsically evil substance called money for its dissemination. Even if we assume that Ellul might have written his book without any promises of royalties (money), InterVarsity Press would never have gone to the expense (money again) of issuing the book without some expectation of receiving enough money to cover more than its costs. Book sellers would not stock the book without some confidence that customers would be willing to exchange their evil money in what Ellul describes as the evil process of buying and selling.

Ellul argues that even the sale of the most ordinary, innocent object sets up a destructive and competitive relationship that Christians should denounce. Ironically, he seems unaware of how this judgment applies to every transaction in which someone purchases his book. Ellul turns every religious bookseller into a participant in a destructive, evil relationship. Every time a child buys candy or an adult pays for electricity, she is a participant in an evil and destructive relationship; or so Ellul thinks. Ellul implies that parents should warn children who request quarters to buy candy bars that they are about to enter into an exploitative relationship. And heaven help the storeowner who dares to sell that child any candy. In Ellul's words, "The idea that selling can be a service is false; in truth the only thing expressed by the transaction is a will to power, a wish to subordinate life to money." [6] Fortunately, most Christians will recognize that Ellul's argument is self-defeating and a distortion of the biblical teaching about money. [7]

Ellul is correct when he warns that money often assumes a sinister power over human lives. But whenever this happens, money (something ethically neutral) has become Mammon. Ellul's entire book seems based on the mistaken identification of money with Mammon (the deification of money). He also fails to grasp the true nature of money. Money is first and foremost a medium of exchange. As such, it is an ethically neutral institution without which many beneficial features of a modern society would be impossible. As human society became increasingly more complex, it became inconvenient for humans to barter one commodity or service for another or to exchange a certain quantity of labor for a certain quantity of some commodity. No one invented money; it simply developed. People who wanted to exchange something found that it was sometimes difficult to find someone who had exactly what they wanted and who at the same time wanted exactly what they had to exchange. Indirect exchanges began to develop. Over a period of time, specialized goods that were more difficult to trade were exchanged for goods that were more easily marketed. As a consequence, the more marketable goods became even more marketable because demand for them increased. Eventually, the most marketable or saleable of these goods acquired the function of money, a medium of exchange. Many goods have served as money. In the cultures with which we are most familiar, money has tended to take the form of precise weights of such metals as gold and silver. [8]

This short detour into Jacques Ellul's book offers only one example of how easily contemporary Christians can fall captive to erroneous thinking about economics in general and about money in particular. It also illustrates how easily such thinkers can then twist the meaning of the Bible to fit their ideology and use the Scriptures in an effort to persuade other uninformed Christians to follow them. [9]

The second set of reasons why Christians should begin to pay attention to theories of money and banking can be summed up under the word harm. Governmental mismanagement of money and erroneous theories of money and banking that serve as grounds for that mismanagement are the cause of enormous social harm, especially to the poor. An excellent example of how governmental mismanagement of money produces serious damage to society was provided by a segment of the CBS television show, "60 minutes," that was broadcast during the early months of 1989. Journalist Mike Wallace and a television crew visited Brazil to cover the incredible inflation rate in Brazil which, at the time, was running about 1,000 per cent a year.

It is difficult for most Americans to imagine what it is like to live in a country where the inflation rate is that high. An example may help. Imagine that on January 1 of some year, you find yourself in possession of $1,000. For one reason or another, you put the money away in a closet or under a mattress and forget it until, let's say, a year later. In a nation where the inflation rate is 1,000 per cent a year, the money that would have purchased $1,000 worth of goods and services on January 1 will, a year later, purchase only $100 worth. Even though the currency has the same numbers on it, its purchasing power will have been reduced by $900.

This is what inflation does to money. Its effect on the lives of the people who are forced to use that money is even more devastating. Inflation is theft. In principle, there is no difference between that $900 being stolen by some thief and the original purchasing power of that money being reduced by inflation. When one lives in a country like this, saving money, even for one day, makes no sense. If money received today is not spent today, it will be worth three per cent less tomorrow and another three per cent less the next day. And so people who do have money in such a society are forced to spend valuable time and energy trying to find ways to preserve some value to their money.

But what about the poor in such a nation? Mike Wallace spent some of the time in his segment focusing on one very poor Brazilian family. The head of the household was a 60-year-old woman who had 12 to feed. There was no man in the house. The only income that poor woman received for a month's work was the equivalent of $30. That was her total income. She had never heard of such a thing as a cost of living allowance. Consequently, while inflation was eating away at the value of her money, she had no hope of keeping up with inflation.

Mike Wallace asked a number of middle-class Brazilians if they knew the cause of their nation's inflation. They did not; nor, if one is to judge from his own comments, did Mike Wallace. It should be obvious that people who do not know what causes inflation will never discover how to cure it.

Before this essay ends, I will identify the cause of Brazil's inflation. At the risk of seeming presumptuous, I will also identify the solution for that inflation. Many in high, as well as low, places appear mystified by the problem of inflation. Consider the example of President Gerald Ford who in 1975 appeared on national television to urge a national crusade against inflation which, at the time, was running about three or four per cent. It is difficult now to remember that not too long ago an inflation rate of four per cent a year was deemed unacceptable in the U.S. A key element in President Ford's war on inflation was a button that he urged Americans to wear. The button bore three letters (W-I-N) which stood for the energizing command, "Whip Inflation Now!" Those of us old enough to remember that occasion can recall that President Ford made it clear that he didn't know what precisely was causing America's growing inflation rate.

Since we've gone back in time, let's go back further. Let's return to the year 1914. I probably don't need to tell you that 1914 was an especially bad year. For one thing, it was the year when World War I started. It was also the first year in which American citizens had to pay a federal income tax. But it was a bad year for a third reason. 1914 was the year when the Federal Reserve System began to operate. The Fed is our nation's central bank. Perhaps there are some legitimate functions for a central bank, such as acting as a clearing house for checks. Unfortunately, central banks like our Federal Reserve System usually end up acquiring total monopolistic control over a nation's monetary system. Gradually, this is what happened in the United States.

In the 76 years since the Fed began operation, the United States has experienced a rather significant amount of inflation. It is interesting to observe that the purchasing power of the American dollar remained relatively constant prior to the establishment of the Fed. Exceptions to this situation prior to 1914 can be explained in terms of the economic assumptions that underlie the argument of this essay. [10]

What would $1,000 of 1914 money purchase today? The answer is that it would buy about $100 worth of goods or services. Notice that the 1,000 per cent inflation that Brazil experienced in one year is almost identical to the rate of inflation we have had in this country since the founding of the Federal Reserve System in 1914.

Perhaps a different example will help you appreciate my point. Suppose you have $1,000 in your home today. Suppose also that a thief breaks into your home, puts a gun against your head, and says, "Give me $900 of that money." Each of us would regard this as an act of theft, a crime, an immoral act, worthy of denunciation from any pulpit in the community. But how much difference is there between the action of this thief and what happens to the people of Brazil over the course of one year? And how much difference is there between the action of this thief and what has happened to the people of the United States over the course of the last 75 years? The principle is the same. In each case, we are dealing with theft. In the case of inflation, the thief is the organization or institutions responsible for the inflation (which includes, of course, the persons who made the decisions that resulted in inflation). The thief responsible for inflation turns out to be government itself.

In order to make this last point clear, we need to see what the real cause of inflation is. Who or what is the cause of Brazil's 1,000 per cent inflation in one year? When a quart of Brazilian milk costs 1,000 per cent more on December 31 than it did the previous January 1, it is a direct result of governmental monetary action. And what makes this governmental action possible is the fact that Brazil's central bank (Brazil's equivalent of the U.S. Federal Reserve System) has total monopolistic control over Brazil's monetary system.

Who or what is the cause of the United States' 1,000 per cent inflation since 1914? The situation regarding inflation is similar in the United States. Once upon a time, the U.S. dollar, by law, had to be backed by a certain weight of gold or silver. Any person could walk into any bank in the country and redeem a piece of paper money for a certain quantity of gold or silver. The fact that the paper currency was backed by something that people regarded as valuable gave them confidence in their money. But it was also the fact that the supply of gold and silver was limited that placed restraints on government's ability to inflate the money supply. When there is only so much gold in the nation's vaults and each piece of paper money must by law be backed by a certain weight of gold, the central bank's ability to expand the money supply is severely curtailed.

Over a period of decades, the federal government slowly reduced the percentage of backing behind each dollar until finally, under moves made during the Lyndon Johnson and Richard Nixon presidencies, there is today precisely no gold backing for the piece of paper we call the American dollar. The fact that there is still some gold left in Fort Knox is beside the point. No one has the right to walk into a bank and demand an exchange of a certain quantity of gold for a quantity of paper dollars.

The inflation this nation has experienced is a direct consequence of the U.S. central bank's expansion of the money supply. As the percentage of backing for our currency decreased, the ability of the Fed to inflate the money supply gradually increased. But once there was no longer any necessary gold backing for the dollar, all restraints were gone and the supply of money was essentially at the mercy of the small group of men at the top of the Federal Reserve System.

Christians believe that God created the world ex nihilo (from no pre-existing stuff or matter). The Federal Reserve System has the power to create money out of nothing! Without any reserves, without any gold or silver as necessary backing for the notes or checks it issues, the Fed has the power simply to declare that some piece of paper (in this case, a check) is worth $10,000. Every bank in the United States must accept that piece of paper and suddenly $10,000 in new money begins circulating through the monetary system. In one sense, it is an incredible invention. We could call it "The Federal Reserve System's Wonderful Money-Making Machine."

Possibly some readers are beginning to see the evil involved in this process. People are being harmed by this arrangement. People on fixed incomes are being deprived of their ability to live on sums of money once thought adequate. All of us are subject to the theft involved in the decline of the purchasing power of our dollars.

The alternative to the Fed's monopolistic control over our nation's money rests in the quite different policies by which our nation handled its monetary affairs prior to 1914. What existed before the establishment of our central bank with its increasingly monopolistic power over our nation's money supply was a decentralized economic and monetary system in which numerous non-federal institutions could issue bank notes or letters of credit providing they had adequate gold or silver reserves to back up their paper. While there were people who tried to circumvent the law, the courts took care of them and their illegal acts. There were laws designed to safeguard the integrity of the paper that traded as currency.

Some will object that a return to such a decentralized system will mark a turn away from progress. What progress? It is imperative that we turn to a monetary system that promises us honest money and an end to governmentally induced inflation. The precise nature that a decentralized system should take in the 21st century is a complex subject that others have already begun to address. My purpose has not been to answer all the questions that could be asked. My goal, instead, has been to show religiously and morally concerned persons that there are strong reasons why they ought to improve their understanding of our nation's money and banking system. Once they achieve that understanding, I believe, they will be outraged at the system. Hopefully, such moral outrage will bring about a more responsible approach to money and banking.

Notes

1. Some of my own efforts to speak out against such evils appear in my books, Freedom, Justice and the State (Lanham, Md.: University Press of America, 1980); Social Justice and the Christian Church (Grand Rapids: Baker, 1983); Poverty and Wealth (Westchester, Illinois: Crossway, 1986); and Liberation Theology (Grand Rapids: Baker, 1988).
2. For a discussion of the content of this Christian worldview, see Ronald Nash, Faith and Reason (Grand Rapids: Zondervan, 1988).
3. Social Justice and the Christian Church and Poverty and Wealth, already cited.
4. Ronald Nash, The Word of God and the Mind of Man (Grand Rapids: Zondervan, 1982).
5. Jacques Ellul, Money and Power, (Downers Grove, Illinois: InterVarsity Press, 1984).
6. Op. cit., p. 79.
7. I offer an extended analysis of where Ellul goes wrong in Poverty and Wealth, chapter 15.
8. I discuss other important functions of money in chapter 15 of Poverty and Wealth.
9. I provide many other examples in my books, Social Justice and the Christian Church and Poverty and Wealth.
10. Ronald Nash, Freedom, Justice and the State, op. cit., chapters 5-6 and Social Justice and the Christian Church, op. cit., chapters 9-11.

Copyright © 1990 This essay originally appeared in Durell Journal of Money and Banking, Vol. 2, No. 3, February, 1990. It is used by permission of the author.