QE3, the Bible, and Economics, Part 2 – Economics 101, But Not As Taught In School


Gold and money - sometimes they are the same

This essay is Part 2 in a series that deals with the ethical link between economic policy and God’s blessings and curses. The previous essay laid the foundation of the moral corruption that’s responsible for our present economic and social policies. This essay provides some Bible-based economic background to build you a framework for understanding economic cause-and-effect.

IN THE BEGINNING

God is the owner of all creation. As transcendent creator, He owns all things. He then made man in His image and delegated subordinate ownership to man, beginning with Adam.

God cursed the ground when Adam and Eve rebelled against Him. (Genesis 3:17) Man’s fall introduced sin and death into the world (Romans 5:12). The curse of the ground guaranteed that, because of thorns and thistles, it would resist our efforts in extracting raw materials from Creation and reworking them into the building blocks of civilization as we labor in the pattern of our Father before us. It guaranteed hard, unpleasant labor: “in pain you shall eat of it all the days of your life…By the sweat of your face you shall eat bread…” (Genesis 3:17-19)

The curse, if not fully responsible for the scarcity of resources, certainly aggravated the problem of the scarcity of resources we face. [1]

Though it may not have been so evident right then, the curse of the ground was also a blessing. Adam’s fall meant that some men would grow up to be unregenerate and rebellious and wicked. But the curse of scarcity and the threat of thorny underbrush mean that men must ultimately work together in order to overcome the curse of the earth and improve their lives. It is by the curse of the ground that the division of labor became absolutely vital. [2]

COOPERATION PRODUCES WEALTH

Men who work together can increase each other’s wealth. They can both become richer. Their quality of life can be improved. The lure of wealth places a check on man’s utter depravity and encourages unregenerate men to work together with regenerate men in honest dealings, and vice versa. (This is also a good way for Christians to spread the Gospel.)

When men work together, they find that they produce goods or services that each desires. In a simple economy, maybe Jim is a fisherman and Steve is a lumberjack. Jim has food (fish), but he doesn’t have wood to build his house. Steve has wood to build his house, but he doesn’t have food. So the two of them trade: fish for wood, and wood for fish. This is simple enough.

In a more complex economy, there might also be Ben, who owns cows and has milk, and Ann, who owns sheep and spins their wool into thread that she uses to make clothes. In this case, things become more complex. Suppose Jim, who has fish, wants wood from Steve, but Steve wants woolen thread from Ann — who, as things tend to go, doesn’t want either wood or fish, but milk from Ben.

So, for Jim to procure his wood, he would have to trade fish for milk, then trade milk for thread, then finally trade thread for wood. Running around town all day long consumes the one resource Jim was given that he can never gain more of: time.

Obviously this becomes complex rather quickly. If only there were a common commodity that they all wanted at the same time! Then, it wouldn’t matter if Steve didn’t want fish; he’d be happy accepting this common commodity because he knew he could trade it at any time for any of the other things he might want.

THE THEORY OF MONEY AND CREDIT 

Ludwig von Mises wrote about this problem in 1912. The result of the market requirements working themselves out over time — through the likes of people like Jim, Steve, Ben, Ann, and millions more — led to the origin of money: the most marketable commodity.

In a simple economy, he wrote, direct exchange can do the trick — that’s barter to you and me. But in a complex economy, indirect exchange necessarily becomes the requirement — exchanging some common commodity that everyone likes with the ultimate plan of buying the thing you actually want.

Mises wrote that “In quite early times, sooner in some places than in others, the extension of indirect exchange led to the employment of the two precious metals gold and silver as common media of exchange.” [3]  He cited their “natural qualities” as being “equally serviceable for the satisfaction of human wants,” such as for making “ornaments and jewellery of all kinds.” [4]

But even Mises failed to grasp the reason behind these metals’ desirable “natural qualities.” Being a rational, humanist economist, he held the belief that, like modern economists, economists cannot make value judgments. Economists shouldn’t recommend policies based on “right” or “wrong,” only predict the result of policies based upon human action.

THE REAL SOURCE OF MEN’S DESIRE OF GOLD

Because of this blindness, he couldn’t explain just exactly why people prefer those metals for money — especially gold — over any others. He provided certain criteria of money that make certain commodities better than others in suiting that task, but other similar metals could meet those criteria. Why does gold, over and over throughout history, seem to be the go-to?

Why do people always desire gold in the end? Why do people desire gold for their jewelry? Why do people like its shine and color? This seems to be a trait of innate desire common to almost all men.

Philosophers can speculate, but only Christians (and possibly orthodox Jews) can provide the real answer. That answer is found in the Book of Genesis:

The name of the first is the Pishon. It is the one that flowed around the whole land of Havilah, where there is gold. And the gold of that land is good; bdellium and onyx stone are there. (Genesis 2:11-12)

People are attracted to gold because God imputed value to it. God made gold, and He said that gold is good. He created it, then judged it, and it was good. Since we are made in God’s image, we tend to like the things He likes; we think His thoughts after Him. That is why, over time, gold tends to become the most marketable commodity, as Mises wrote so long ago.

It’s part of our nature, not gold’s nature. [5]

MONEY, NOT BARTER, PROMOTES COMPLEX ECONOMIES

Money is a transmitter of value through time and space and it facilitates credit transactions [6]. Money allows us to extinguish any debts that we owe: extensions of credit. Buying items on credit is the process of exchanging present goods against future goods. [7]

In terms of buying a house through a mortgage, we are exchanging future income we earn (mortgage payments) for the convenience of a house today that we otherwise could not afford. We are agreeing to not buy things in the future so that we can attain gratification today. The income we sacrifice for the next 30 years represents future goods that we could have purchased.

Money encourages an increasingly complex division of labor.

For example, imagine modern corporations trying to calculate their profits in terms of how many dozens of eggs they can buy, or how many horses they can buy, or how many hundreds of pounds of beef they can buy, or any combination of these and thousands of other things.

Money simplifies this accounting process. We can store it up to spend in the future.

IN GOLD WE TRUST

People trust gold as money because it is reliable. Gold money is hard to counterfeit. Its mass and purity can be precisely measured.

To “counterfeit” it, men have to dig more out of the ground, filter it, melt it, mold it, and stamp it in order to bring more into the market. It takes a lot of effort to “make” more gold money without actually producing products of value that others want and receiving it in a mutually beneficial exchange (selling).  Since gold is so scarce, it requires much labor to extract from the ground.

The great difficulty involved in “counterfeiting” gold coins by digging more out of the ground is a massive deterrent in doing so. It is a task that requires much more than one man; it is a corporate effort.

CONCLUSION

It is here, with the introduction of gold, gold as money, and credit that we take a break before digging into the next section. You have learned that God’s curse of the earth due to man’s rebellion (ethical disobedience) led to the problem of scarcity of resources that we are faced with today. You learned that the curse was also a blessing because it encourages men to work together. By working together and utilizing the division of labor they can increase their wealth.

Money is the most marketable commodity. It allows for more complex economies because it permits indirect exchange which is much more efficient than barter. It allows the division of labor to become increasingly more complex. When men trust each other, and they trust the form of payment they are receiving, they can focus on serving others (instead of wasting money on excessive legal fees, for example).

Throughout history, man has tended to prefer gold and silver for use as money. This is not because of some intrinsic value that gold and other precious metals and stones contain, but because God imputed value to them and judged them to be good. Because we are made in His image, we tend to like the things God likes. And God likes gold.

In the coming articles, you will be able to more easily understand what QE3 (or QEternity) is, what its inevitable adverse-effects on our economy will be, and why that is. If you have stuck with me this far, then you can certainly get through the rest.

Click here to read Part 3.

________________

1. Gary North, Sovereignty and Dominion: Volume 1, 3rd ed. (Dallas, Georgia: Point Five Press, [1982] 2012), ch. 12.

2. Ibid., p.149

3. Ludwig von Mises, The Theory of Money and Credit (Auburn, Alabama: Ludwig von Mises Institute, 2009), p.33.

4. Idem.

5. North, ch. 7

6. Mises, p.35.

7. Idem.

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5 responses to “QE3, the Bible, and Economics, Part 2 – Economics 101, But Not As Taught In School

  1. Reblogged this on Studies in Economics and commented:
    The present article is a part of a series teaching the “ethical link between economic policy and God’s blessings and curses.” Particularly, the focus of the essay is to provide the basic biblical foundation for economic transaction. Common with other Christian economists, the writer upholds the Ultimate Ownership of God over all things, the creation of man in His image, and the task given to man to manage all things under God. The writer’s concept of scarcity is instructive. It is due to man’s sin and God’s curse that scarcity of resources exists. However, scarcity can be an opportunity for blessing through cooperative work, that is, the division of labor. Furthermore, honesty is required in economic transaction. Without it, the economy is distorted. After mentioning the importance of honesty, the writer distinguishes between simple and complex economies. The emergence of “common commodity” or money is occasioned by the need for efficient transaction in a complex economy. Among common commodities, history shows that since the beginning of time, gold occupies a prominent place for people of all ages are naturally attracted to it. The writer presents two major explanations to explain man’s innate attraction towards gold. Some explain such attraction in relation to gold’s inherent beauty due to its bright yellow color. Moreover, the writer claims that the real reason for man’s innate attraction to goal is due to the fact that man is made in God’s image. It is God Himself who ascribes value and considers gold good. Man as God’s image instinctively reflects such attribution of God towards gold. Throughout history, trust in gold characterized man’s economic activity due to its qualities of measurability, reliability, and scarcity.

  2. Pingback: QE3, the Bible, and Economics, Part 3 – Free Market Economics | Rebuild America's Biblical Worldview

  3. Pingback: QE3, the Bible, and Economics, Part 4 – Interest Rates | Rebuild America's Biblical Worldview

  4. Pingback: QE3, the Bible, and Economics, Part 5 – Entrepreneurship | Rebuild America's Biblical Worldview

  5. Pingback: QE3, the Bible, and Economics, Part 1 – A More Thorough Discussion | Rebuild America's Biblical Worldview

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