Creation and Inflation:
Does the Bible Speak to Our Practical Problems?
By Edward Coleson
For many years the present author has been interested in Scriptural perspectives related to what has been called our most pressing national and international problem - inflation. This modern plague is epidemic across the earth and is destroying the buying power of nearly every country's money. I first became interested in the question ofa proper monetary system during the Great Depression. I was a teenager in high school and was taking a semester of economics. At that time there were many fascinating articles on money and banking in newspapers and magazines. From these articles and various school textbooks I learned that in the past money was the equivalent ofgold or silver, a standard weight of these precious metals. I learned also that in the late medieval period, after business began to revive, some of the goldsmiths developed into bankers by storing their neighbors' gold pieces. They discovered over time that people were very willing to use the deposit receipt for this gold as money in lieu of the gold itself and that they (the goldsmiths) could pass off pieces of paper representing gold that didn't even exist. The temptation to multiply the paper being too strong for mere mortals to resist the goldsmiths sooner or later over-issued their new paper money and precipitated a monetary crisis that resulted in a depression (a financial panic. as they used to call it).
Since many writers on economic matters in those days following the "Crash of `29" attributed the misfortunes of that era to the irresponsible credit expansion of the "Golden Twenties," there was a strong tendency to emphasize the virtues of sound money. Unfortunately their advice went largely unheeded and Keynesian economics came to dominate the thinking of government officials and policy makers. The present economic crisis may, however, cause a thoughtful reconsideration of a "sound money policy."
Those interested in this subject would find it instructive to examine the literature on economics that appeared after the Crash. For instance, there was Irving Fisher of Yale University who denounced the "ruinous system of lending the same money B or 10 times over..." Then there was Garet Garrett who wrote a series of articles for The Saturday Evening Post which appeared about 1931) 1 have them reprinted in book form as A Bubble That Broke the World). To Garrett, what led to the Great Depression was a "Mass ... delusion aoout credit."2 What these writers and many others were condemning was "fractional reserve banking, or the practice of requiring banks to keep only a percentage of their accounts and deposits on hand. It is this policy which allows banks to "create" money ex nihilo. One writer, Benjamin M. Anderson, for many years the economist of Chase National Bank, told how bankers watched the growth of our money supply during World War I "with fear and trembling" and"... held it down all we could." But, as he lamented, after the war was over, from 1922 to 1928,".., without need, without justification, lightheantedly, irresponsibly, we expanded bank credit by more than twice as much."3 They had sowed the wind and we as a nation were soon to reap the whirlwind.
Although economists have long joked that the medieval goldsmiths-turned-bankers succeeded where the alchemists had failed, the practice of lending the same "moneyS or 10 times" seems not to have drawn too much criticism over the last several centuries. The flurry of anti-credit-expansion sentiments of the early Depression era was a reaction to the excesses of the boom years just before the Crash. These economists probably objected mostly on pragmatic grodnds: the system had not worked. My own youthful reaction to credit creation, to use the standard phrase both then and now, was that on Scriptural grounds it must be wrong for the simple reason that only God can create ex nihilo (John 1:3)! Therefore, there had to be something fundamentally wrong with credit creation, both when it seemed to be working (in boom times) and when it wasn't (during the Depression). The reason the practice has never been seriously challenged is that a multitude of people, including many that are educated, believe, as the late Ludwig von Mises warned us, that all that is needed to usher in an economic utopia "is more money and credit."4 Mises regarded this as the basic delusion of the modern era. This, of course, is one man's opinion against what may well be the consensus of our age. But there is objective evidence that he was right As Elgin Grosectose pointed out several years ago. the Byzantine Empire maintained a sound money for eight hundred years. He quotes Heinrich Gelzer as saying, "By her money Byzantium controlled both the civilized and the barbarian worlds." In other words, the gold hezant maintained its weight and purity for four times as long as the United States has been a nation, and it served as a medium of exchange far beyond the Byzantine borders. We in our two centuries of existence have had many monetary crises and have fallen into another serious one at the present time. It may well beihat providing an honest dollar would have been one of the greatest contributions we could have made for our troubled world in addition to providing many great advantages for ourselves.
One of the first references to the use of money in the Bible provides interesting clues to the monetary system in practice during patriarchal times. At the death of Sarah. Abraham bought the cave of Machpelah as a family cemetery: "Abraham weighed to Ephron. . four hundred shekels of silver. . (Gen. 23:16). The money at that time, some four thousand years ago, consisted of pieces of precious metal, often in the form of rings, which passed from buyer to seller by weight. In those days they counted cattle and weighed money. It could well be said that we have reversed the order to our ruin. There is no harm of course in weighing livestock, but money, if it is to retain its value, must be a specified weight of a precious metal. The standard must also be maintained over time. Now I don't think the Bible commands that we reinstate the system in vogue four thousand years ago. but it does forbid stealing. whatever the method used to defraud others. When a "false balance" is condemned and a "just weight" extolled in Scripture, as in Proverbs 11:1, it does not seem to be stretching the principle too far to apply it to the question of a stable and dependable money. Honest money is a central problem in Biblical times, and in every other era of history.
It is interesting to speculate with regard to how the history of the last few centuries might have been different, if the medieval goldsmiths had never learned to "create" money. Malcolm Muggeridge, an ex-Fabian socialist once made the point that Christ could easily have gotten His ministry off to a flying start by making stones into bread, as the tempter suggested (Matt. 4:3). As Muggeridge reminds us, "The Roman authorities distributed free bread to promote Caesar's kingdom, and Jesus could do the same to promote His."6 It is interesting to note that John Maynard Keynes, the British godfather of the American New Deal of the 1930's, boasted that credit expansion performs the "miracle . . . of turning a stone into bread."7 In our age of inflation we are learning the cruel fact that credit creation is an unscriptural practice which leads to famine, not abundance. With a growing awareness that our policies have been unsound, what better time to proclaim the relevance of God's Truth to the sum total of life, even to devising a sound monetary system?
1 Arleigh P. Hess, Jr., Robert F. Gallman, John P. Rice and Carl Stern, editors, Outside Readings in Economics (New York: Thomas Y. Crowell Co., second edition, 1958), p. 343.
2 Garet Garrett, A Bubble that Broke the World (Boston: Little, Brown and Co., 1932), p. 3.
3 Benjamin M. Anderson, Economics and the Public Welfare (Princeton: D. Van Nostrand Co., 1949), p. 135.
4 Ludwig von Mises, Planning for Freedom (South Holland, Illinois: Libertarian Press, second edition, 1962), p. 50.
5 Elgin Groseclose, Money and Man (New York: Frederick Ungar Publishing Co., second edition, 1967), pp. 53-54.
6 Malcolm Muggeridge, Jesus, the Man who Lives (New York: Harper and Row, Publishers, 1975), p. 52
7 von Mises, op. cit.. p. 51.