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Christian Economics in One Lesson, II: 6: Money

Written by Gary North on May 7, 2016

And Abram was very rich in cattle, in silver and in gold (Gen. 13:2)

The Hebrew word for silver is frequently translated as money. In biblical times, the precious metals served as money. They were also regarded as signs of wealth. Abram’s case is obvious. Abram was rich. The text tells us what his wealth consisted of: cattle, silver, and gold.

Cattle can be used for many things: food, hides, fertilizer, beasts of burden. Cattle can be used to trade for other goods and services. They are also a lot of trouble to care for. Gold and silver were less versatile than cattle in Abram’s day, though not in our own, where they can be used in chemical and electronic processes. In Abram’s day, they could be used to make jewelry and idols. What else? Not much. Yet they were major components of his wealth. Why? What did gold and silver do that was so valuable?

What they did was serve as items of trade. Other people wanted gold and silver, so Abram could trade with strangers. He was a stranger in Canaan (Gen. 23:4), but he could buy a burial place for his wife with his silver (Gen. 23:16). The money made it possible for him to buy favor from others. They were willing to provide him with what he wanted because he had what they wanted: money.

But why did other people want his money? To answer this question, we must first answer another: What is money? To this question there are many very confused answers.

Confusion Over Money

Monetary theory has always been a topic of debate that has led to widespread confusion. Everyone has money, but hardly anyone can explain precisely what it is. The modern world finds it impossible to define money or even count it. Economists commonly speak of monetary aggregates known as M-1 through M-5. There are arcane measures known only to specialists. In terms of international trade, there may be additional ways to define money. What constitutes money in these measures? Silver? Not any more. Gold? Sometimes, but it is infrequently used today in actual exchanges between individuals. Central banks exchange gold, most of which is stored in piles in the privately owned Federal Reserve Bank of New York and at the airport depository in Zurich. The famous U.S. gold hoard in Fort Knox is never audited by an independent firm. So it may not actually all be there. Critics made this accusation in the mid-1970’s, but Congress refused to order a full-scale audit. It would not be in the political interests of incumbent politicians if an independently conducted audit disclosed that tens of billions of dollars worth of the nation’s gold reserves are missing. In any case, Fort Knox is said to be mostly gold coin melt, and therefore cannot be used in international exchange in its present form: too much copper content.

What else is regarded as money today? Paper money, bank checks, bank passbook savings accounts, and money-market fund accounts are all considered components of one or another definition of money. But what about overnight bank repurchase agreements? What about slot machine tokens in a gambling casino? Federal law in the United States prohibits the use of casino tokens to buy dinner in the casinos that issue them, which indicates that these tokens have functioned as money in the past, which is why the government passed the law. Defining money gets very complex.

What about counterfeit money? It surely functions as money if it passes for money. In what way is a high quality counterfeit bill different from a piece of paper issued by the government, or as the case usually is, by the government’s licensed monopoly, a privately owned central bank? Neither form of paper money is legally backed by gold or silver. Both forms stimulate the economy when new bills are printed and spent into circulation. The only technical distinction would seem to be that the counterfeiter has violated the central bank’s copyright law.

Why is there such contusion about money? Because, to paraphrase Forrest Gump, money is as money does. If something functions as money, it is money. Even illegal counterfeit money can serve as money, which is what governments greatly fear and resent. Someone is willing to exchange goods and services for money. Someone else is willing to hold it rather than goods as a form of wealth. What does it mean to function as money? How does money function?

Robinson Crusoe

Economists love to use the story of Robinson Crusoe to begin the mysteries of economics. In the original book, Robinson was the rebellious son of a Puritan father who wanted him to pray, study, work hard, and amount to something. Robinson refused to listen and wound up on a deserted island. The book ends when he is rescued from the island. This is just as well. The thought of generations of economists trying to explain the rest of his life is fearful; they can barely make sense out of his island experience.

(For the rest of my article, click the link.)

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