Humanism, Infallibility, and Money (3)
The Moral Foundation of Money
It is a privilege for me to be here tonight, both because of my respect for the stand and the work of the association. But also because of the pleasure of seeing some familiar faces of old friends. I’m more than a little intimidated tonight as I speak to the subject of ‘the moral foundations of money,’ because I am in the presence tonight of one of the most brilliant minds in America where the subject of economics is concerned. One who not only is a master of this subject, and a worthy associate of men like Von Mises and Sennholz and others, but one of the two men in the United States today who are and have been for some time thinking the subject through and its relationship to Christian faith. And so, it is with some fear and trembling I speak on the subject of money, in the presence of Mr. Fred Nymeyer. Those of you who know him know his brilliance, and the privilege of knowing him.
Perhaps the subject of the moral foundations of money can best be introduced with a little story. A young man, a crowned prince it is said, some generations ago ascended the throne of a little country in Europe, and as an eager and earnest young man he was especially anxious to do a good job. And so he decided that he should master the subjects that were central to government. He had a problem, however, when it came to economics. He called in the economists of the realm and he asked them to explain economics to him, but the more they explained the more confused the poor young man became. And so finally the young king ordered them angrily to be silent. And he said: “This is terrible, I know less of the subject now after you taught me then I did before you began, I want to hear no more of this subject unless one of you can give me a simple definition of sound economics in ten words.” At this point one of the courtiers stepped forward and he said: “Your majesty I can do it in nine words. Here it is: there is no such thing as a free lunch.” He was right of course.
There is no such thing as a free lunch, somebody is providing it. Somebody is paying for it with money or with labor. And it is one of the illusions of our day that people believe there is somehow a free lunch obtainable. And it is because we are given to the kind of illusion that this belief represents that we have the problems we do today. These problems infect us all.
I know a young couple, both husband and wife coming from the finest of Christian homes, both of them having excellent Christian training. The young man actually studied Greek and Hebrew, not because he ever had any intention of going to a seminary, but because he felt it was his duty to understand the Scriptures in their original languages. But, from the beginning of their marriage, they had a chronic problem. They bought a very lovely home in an excellent neighborhood, they furnished it lavishly. After all, being thoroughly modern, they felt they should start where their parents were leaving off, as it were. That they should begin as well-off as their parents were at that time. They had everything, but it became soon apparent that they were having troubles making ends meet. And so they came to an easy solution, the wife said: “Well I’ll go to work. I’m quite confident in a number of areas, I had several good positions before we got married, this is the answer.” But it wasn’t. Because when she went to work their income was vastly increased, and immediately their appetites began to outrun their new income. And it finally reached the point where, having borrowed from parents on both sides until their parents would no longer countenance any further borrowing, they were in a serious crisis: if they paid all their bills in a single month they would have about ten dollars left to eat on. And so they were paying one set of bills one month and the other set the other month. But this was getting them nowhere except into trouble. They finally went to a counselor, a financial counselor who suggested that they had better sell their house. They had, after all, some equity in it. They had received generous gifts at the time of their marriage from both sets of parents. If they would take the equity from their home it would eliminate a sizable portion of their debt, and they could rent and live in a cheaper neighborhood until they again were on their feet. They did so. But, of course, with a cheaper home rented, less expenses, and the same income they suddenly felt very rich. And so again, their expenses began to expand beyond their income. Very wonderful vacations: “fly now to Europe and pay later!” One thing after another, until again they were in a serious crisis. Now this little illustration is a very familiar one, perhaps, to many of you.
The credit counselors of America, the American Association of Credit Counselors had a conference in California recently, and at this conference they stated that one third of the families of the United States are in serious financial trouble because of heavy indebtedness. This is serious trouble and that over half the families of the United States are in trouble because of indebtedness, and incapable of meeting a serious crisis. This represents a fundamental immorality. The young couple I cited believed themselves to be very good Christians, coming from the best of backgrounds, having the finest of training in Christian home, school, and church. It would have shocked them to be told that they were immoral, but they were. And it is precisely because there is this kind of immorality, this irresponsibility on the level of even good people, or ostensibly good people, that we have the national crisis. What is our national crisis? The national monetary crisis. To understand that, let us examine what money is first of all.
Money has been defined very often by economists as a ‘medium of exchange.’ Now technically this is a correct definition but it is a dishonest one, it doesn’t say much. You can define man accurately to a degree as a two-legged animal, but a chicken is a two-legged animal also, and is a chicken a man? Another definition that is current in the schools is that ‘money is the representation of wealth.’ This is false, if money is merely the representation of wealth, you’re being cheated. Money has to be wealth, or it is a counterfeit. Would you be satisfied in buying a house if you’re given the mere representation of the house? Or is it not a house you want?
Thus it is, that true money, to put it very briefly, is gold and silver, it is hard money, it is money that is wealth. Paper money is checkbook money. Once, our checks were good checks, they read: “Payable to the bearer on demand twenty dollars in gold, or ten dollars, or five dollars in silver.” These were valid checks negotiable, your checks, you know that you write read: “Pay to the order of.” This is why the paper money read: “payable to the bearer.” It was, self-consciously, a check. But, just as that young couple overextended itself because it was interested in the good life, so the United States, and virtually every government on the face of the earth has overextended itself because it has been desirous of what it defines as ‘the good life.’
We have issued a vast number of bad checks. The United States claims that there are $39 billion in outstanding checks in the hands of foreign countries. Some put the estimates as high as $50 billion. But in the bank, the United States has, by its statement $10 billion in gold, some would cut that figure in half.
Now, translate this, because we are trying to keep this as simple as possible tonight, as an elementary introduction. Translate this to the terminology of your bank account. You have $10,000 in the account and you write checks for $39,000 or $50,000, and you have trouble on your hands, very serious trouble. This is exactly the predicament of the United States today, we’ve got all these checks outstanding.
What have we done about it? Well, first of all, the world being on the gold standard, accounts were settled regularly in gold as far as trade between countries was concerned. But in 1922 we went on the gold exchange standard, still tied to gold, but saying: “Let us instead of settling in gold, be content as long as the country within the account has to be settled, holds or receives checks or a paper currency exchangeable for gold, in most cases, almost all cases, dollars or English pounds.”
Now this system has enabled, of course, that all the countries, the United States and Britain in particular, to keep issuing more and more checks, until the point has been reached that these countries have been restless, and so you have had in recent years periodic gold-rushes. To prevent a gold rush right now they have stopped issuing statements concerning the extent of the sale of gold at the Zurich market, and the London market, and elsewhere so people will not become panicky, so that there will not be adequate information as to what is going on.
Meanwhile, the commercial use of gold has been increasing tremendously, as well as with silver. As a matter of fact, a recent report indicated that the commercial use of gold is now beginning to outrun the world production of gold. Last Thursday night in Torrance, California, I was sitting next to a man who is a manufacturer, and he was telling me of a new use for gold that is being dealt with experimentally now which he said will tremendously increase the use of gold, it is in gun sights. Experiments indicate that if gun sights are made with gold or coated with gold and a particular alloy a soldier can sight, or a hunter, almost directly into the sun and still have a relatively clear vision because the gold will somehow deflect the ray of sunlight as he sights along the barrel. And this man indicated that preliminary tests indicated this was a tremendous thing as far as the development of the rifle was concerned, and if accepted, will be another one of many many new uses for gold.
As a result, the nations again have a crisis. They are coming up with a gimmick which is designed basically for the press and for public relations called ‘paper gold,’ which, of course, is a contradiction in terms. ‘Paper gold’ will be an accounting entry, it will not be anything printed or circulated. It will be a means of fresh credit to nations which are such deadbeats now that they can’t get credit, and it will be a means whereby they will settle accounts with other nations. But, how would you feel if someone owed you money, and was unable to pay except with more bad checks, if they gave you a new kind of check and called it ‘paper gold.?’ Your attitude towards it would not be too favorable.
And thus it is that even as paper gold was discussed by the IMF, the Wall Street Journal also announced that in violation of an agreement made between these same countries, a number of countries had bought $100 million in gold from South Africa. The significance of this is, with already all the current production of gold in the world, in the free world, being bought by the free market for commercial and industrial uses. South Africa is only able to meet such sales by dipping into its reserves, as it has done. As a result, the countries are in a bind. How do countries solve their problem when they have financial difficulties? This young couple had two answers. First, the wife went to work; increase your income, second, they borrowed again and again and again. And governments use the same device. They increase their income by taxing, they increase their income also by borrowing; bonds. But they also have another device, which is tampering with money. We’ve dealt with that tampering, which is creating vast amounts of checkbook money against borrowings, but let us look behind this entire matter now, examine the motives, and examine what it does to the economy of a country.
You remember the little story that I told at the beginning? “There is no such thing as a free lunch.” It’s a very obvious fact. A ‘free lunch’ costs somebody something, everything has a price. It costs something to build this church, it costs something to manufacture the carpeting, the pews, your clothing, everything has a price. Now, the price of a thing has four aspects to it, and it is very important to remember this. What are the four aspects of price? First, there is the cost of materials. You can’t get around this. Whatever goes into the item that is put on the market has in it the cost of the materials, that’s inescapable. Second, there is the cost of the labor, again that is inescapable. There is no way of getting around the cost of the labor. Third, there is the cost of the capital and of the management, of the marketing. Again this is inescapable. And fourth and finally there is the cost of the government, the tax, to provide the law and order which makes possible the operation of an orderly society. Now these four aspects of price are inescapable.
And this is why socialists are faced with a problem. They start out with ideal motives. ‘Idealism,’ incidentally, is a bad word but we won’t take time to go into that now. But they’re idealists, they have this burning desire to relieve human distress. So many poor: “well we should be able to take care of them.” So many living in substandard housing: “why can’t the state provide better housing?” “So much distress in the world, why don’t we extend help to them? These people are backward.” One way or another, the idealist is burning with the desire to relieve human distress wherever he sees it. But, of course, how is he going to get around the fact of price? Even if the state takes over, it still has the cost of the materials, the cost of the labor, the cost of the capital, and the cost of civil government without the ability to manage competitively. A year ago I heard the premiere of a Canadian province where they experimented for a long time in socialism describe the fearful mess they were in when he took office. They had gotten into the production of shoes, for example. Every working family should have cheap shoes, they felt. But they ended up producing shoes that were poorer in quality, and higher in cost. Every area they went into they were amateurs, and they could not produce more cheaply than free enterprise, they could not get around price, it’s an impossibility. The free market establishes the valid price.
Idealists, as they deal with the price mechanism, and try to square it with their desire to give and to give, to have a free lunch, do an ‘end run’ as it were, around the price mechanism. The price is paid with cheaper money. And so the government begins to inflate an economy, this is inflation. You may read occasionally that politicians are condemning business or labor as being guilty of inflation, business for raising its prices, and labor for demanding higher wages. These are not the causes of inflation, they are products of inflation. Inflation is created by civil governments. Inflation is essentially, primarily, basically a product of tampering with money. And money has changed, has it not?
Not too many years ago it was possible, well it’s been some years ago about a century ago, you could go into the best restaurant in New York, and you could get a New York steak, soup, salad, dessert, everything for five cents, ten cents, the whole meal. Those were hard money days. A man worked a day, and he got a dollar. In those days too, you could buy a house, in fact you could buy a house at the beginning of this century, for three hundred dollars. When I lived in San Francisco there were many houses on the street where I lived that had been built in the old days for $300, and they were still good houses, but they were selling for a lot more. Last week I was visiting a friend in a very lovely home in La Cañada in California. The home was built in 1939, completed in ‘40, it sits on a beautiful two-acre tract, beautifully landscaped. All the hardware in the house was made with hand-crafted labor. All the tile on the roof was handcrafted. All the tile in the kitchen, and the bathroom again, handcrafted. The place is a showplace, a large beautiful home. You couldn’t touch it today for $100,000. It was built in 1939 in California for $7,500.
Something has happened to our money, has it not? It has become cheaper. Cheap money thus is a growing reality in our lives. Cheap money has driven out good money. We saw the silver coinage disappear as the price of silver went up, and the price of money became cheaper. And silver coinage, which was once a basic part of our heritage, is now gone. And things like this which were once common throughout the West, the silver dollar, are now gone unless you go to a coin shop and pay at least $2.50 for it. And $2.50 is a good price because it won’t be long before it’s $3, $3.50, $4, $5. This is inflation.
The government has been creating, you see, more and more money. There isn’t time to go into the process whereby this is created by borrowing against your savings and the banks by issuing bonds, creating debt-money. But more paper money is pumped into the economy constantly. This creates the danger of runaway inflation when paper money becomes totally worthless.
And so, the governments have become frightened all over the world. They have visions of what has happened elsewhere, of things like the German inflation in ‘23, when it finally cost instead of a few pfennigs, or pennies to mail a letter, a few hundred million marks and finally a few billion marks, when people were wiped out. I have in fact here some German bonds of ‘22, they’re part of quite a stack that a friend has. His father who was a thrifty, God-fearing man bought the stack of bonds in Germany because he had faith in the German government. It doesn’t pay to put your faith in governments, only in God. These were never paid off, in fact, these were never even cut and separated. Ten ℳ200 bond, and one ℳ10,000 bond, printed only on one side, issued hastily and cheaply, never paid off. Frans Chik?????, one of the world’s great monetaries experts, has said today of all bondholders that they will be left with finally with only eyes to cry with.
Paper money, and everything that stands behind it, will go down the drain. And because of this increasing supply of paper money, the mechanism used by the governments to go around the price mechanism, people are being robbed. If you have savings, you are being robbed. If you have $10,000 in the bank, that $10,000 is not worth as much now as it was worth five years ago, or ten years ago. You do get five percent interest, but your money has lost more than five percent value. On top of that you’ve paid taxes on that five percent interest that you get. So you’re losing ground, especially since inflation was at least five percent last year. So the value of your money is being nibbled away.
The time may come when the $10,000 won’t buy you a sandwich, because paper money, unbacked by one hundred percent reserves of gold and silver, depreciates progressively. And our money is depreciating, hence the tight money policy. We have slowed down printing fresh money so there is a serious money squeeze in the United States today. If you examine the Wall Street Journal you will see that the amount of fresh money pumped into the economy is very very slight, it’s only sometimes $8 million a week and something comparable to that. But of course, they’re flirting with disaster.
If they deflate too much, they aren’t deflating; they’re just breaking the economy with their tight money policy, you create a recession, and we do have a recession now. And it can lead to serious trouble, but a depression is not what they want, It is financially dangerous, so you re-inflate again, but when you re-inflate you again face this threat of runaway inflation and so you will get the brakes put on again. And so, we will see while it swings back and forth between recessions or tight money policies and re-inflation, each more violent than the one preceding it until the money finally goes down the drain and is worthless. And the savings of people are wiped out because there is no such thing as a free lunch, because the government, to get around the price mechanism, has been robbing the people by cheapening the money in order to provide somebody with a lunch that is free for them but paid by you; paid by taxes and paid by inflation. The consequence of it is disaster. We have passed the point of no return. The wages of sin have always been and will always continue to be death. And the world economies today are plunging, very steadily, towards total disaster.
As a result, it behooves us to understand what money is. Because money is basic to any economy, it is the lifeblood of any economy. It will not do to say that: “America will still have its productivity.” America’s productivity was very great in 1931, and ‘32, and ‘33, and ‘34, but it didn’t prevent us from having a depression, because we had had inflation, and the inflationary boom had collapsed. But this time, the government has gone so far that it does not dare turn back and it is plunging ahead towards total inflation as are all the countries of the world. And we, who should have been of break, a source of protest against the studied immorality of inflation have not done so, because we do not know the Scriptures.
The Scripture that was read earlier cited as one of the indictments by God against Jerusalem, that “…thy silver has become dross.” What does this mean? Your silver is now slugs! That indictment by God to Judah and Jerusalem is God’s indictment to the world today. Where is your silver coinage? It has become dross, slugs. A dishonest circulating media, and your paper money, dross. What was God’s standard for money? In Leviticus 19:35,36 we read God’s standard:
“Ye shall do no unrighteousness in judgment in meters, in weights, or in measures. Just balances, just weights, a just ephah and a just hin shall ye have. I am the Lord your God which brought you out of the land of Egypt.”
That is talking, first of all, about money. Money? weights and measures? Money? Yes, money! because the money of the Old Testament economy was not a coin, but a weight of gold and silver. A shekel of gold and a shekel of silver virtually throughout all Bible times and entirely so during most of its history, was a weight of gold and a weight of silver and Solomon’s primary reference here was a just weight. In terms of the commerce, in terms of their dealings one with another, a just shekel. This was known through the centuries.
You may not be aware of it, but when the coinage of the United States was established it was established with reference to Moses’ ordinance. The standard gold coin of the United States was the double eagle or the twenty dollar gold piece to be an ounce, nine hundred fineness gold. Why weight? Well, they reasoned, this is the standard as ordained by God and the world over who knows when they’re dealing with other countries what a ‘lira’ means or a ‘mark,’ or a ‘krone,’ or a ‘peso,’ or a ‘franc.’ These are difficult things, we don’t know what this means. But weight, why people understand weight! Therefore, we are giving people a weight of gold, minted yes, milled yes, so it will not be clipped. But a weight, this was one of the great reasons of the popularity of the American gold coinage throughout the world. When we issued a trade dollar for trade with the Orient, again, in terms of the physical standard, we put on it the exact number of grains of silver in the coin. It was by weight. Moreover, in the 1820’s and 30’s, when the issue came up as to: “could the money of the United States be treated as a coinage or not?” it was ruled it was not coinage, but it was a commodity. It was gold and silver. A commodity to be bought and sold by weight. And the constitution read that: “the Congress shall have power to coin money and to establish the weights thereof.” It was by weight, because they self-consciously followed the Levitical law: “Just weights and just measures shall ye have.” But now we have a rubber measure. And it is stretched year by year, stretched to get around the price mechanism, an elastic measure to rob you. And it is robbing you not only of your wealth but of your liberties because when governments go from a hard money to a paper money they vastly increase their power because then they become the official counterfeiter. You are forbidden to counterfeit, but they retain that right. You are required to have honest scales in your business, but they can have a dishonest scale with respect to money.
Inflation, therefore, continues to accelerate because the people progressively catch on to inflation, and larceny enters into their heart, and they go into debt knowing unconsciously they will pay off good debts with bad money. As one man said, thinking he was a very good Christian: “I’m all for inflation, when I bought this house I only had to pay $80 a month and now I have double the income that I did then and only the same payment and I can turn around and sell my house for two and three times as much.” And I said: “That’s right, but meanwhile you are robbing the man who sold you, and the state has set it up so that he and every man like him will be robbed, good debts will be paid off with cheap or bad money.” And meanwhile with this cheap money many people are getting a lunch that is free to them but costly to you and to the nation, because it is creating the belief that an economy can provide a free lunch, and so their appetite grows.
I referred two nights ago to what happened in Rome. Behind that was this whole policy of a debased currency, of inflation, of paying off the mobs continually with every cheapening money and you remember I cited what happened to Aurelian in 274 AD. He gained favor with the mob with a new great step in his welfare program. Many of the welfare recipients were disturbed, they were getting free housing, apartment houses built for public housing. They were getting bread and circuses, that is their food, and free tickets to the circus, the Roman arena for the games and the races and the pleasure of seeing the Christians tossed to the lions. Wonderful entertainment. It’s the kind of entertainment that debauched people and a debauched nation with a debauched currency enjoys. They were also getting free wine too, because after all they were entitled to some pleasures even more than the circus. They still weren’t satisfied. And so Aurelian in 274 AD said: “Yes, we’ll give in to you. It is, we agree, traumatic for your children to have to apply for relief. And so we’re taking away the necessity of applying for relief and going through the process of being interviewed by nosy government officials. Every child born to every welfare family will have cradle-to-grave security as his birthright without application.” The crowd loved Aurelian. The coinage, the slugs of that year hailed him as: “our savior and our god.” But poor Aurelian, he had nothing new to deliver the next year, and so they killed him. We’re not far from that stage now. Someone who is present told me that already there is the presumption of qualification given to many, so that they are entitled without application to relief. Monetary debauchery creates a steadily debauched people. It feeds on their immorality, and creates more immorality, and the end is ruin, anarchy and collapse, as one way inflation destroys the money entirely and it will not buy a crust of bread, and there is total lawlessness.
In 1937, and with this I conclude. Roger Babson, who was not entirely sound in all matters, but nonetheless perceptive in some things, wrote a book entitled If Inflation Comes. He felt that the New Deal was opening the door to runaway inflation in a generation. He wrote:
“In plunging into this great problem of inflation, I can only ask you to read between the lines. Translate such words as ‘circulating media’ into your own pocketbook, bankbook, and checkbook. Interpret ‘commodity hoarding’ in terms of your own cellar and pantry. From a faithful study of previous inflations in the United States and abroad, I can promise you one thing, the so-called dry statistics which I shall present may someday blow up in your faces. If you find it hard to listen to my heavy discussions, remember there may come a night when you awake to listen to the sound of men running in the streets. You may care nothing about inflation, but believe me, that inflation cares a whole lot about you.”
The sound of those running feet is not too far away.
Rev. R.J. Rushdoony (1916–2001), was a leading theologian, church/state expert, and author of numerous works on the application of Biblical law to society. He started the Chalcedon Foundation in 1965. His Institutes of Biblical Law (1973) began the contemporary theonomy movement which posits the validity of Biblical law as God’s standard of obedience for all. He is credited with igniting the modern Christian school and homeschooling movements in the mid to late 20th century. Many ministry and educational efforts that continue today, took their philosophical and Biblical roots from his lectures and books. Learn more about R.J. Rushdoony by visiting: https://chalcedon.edu/founder