Debt-Free Money Will Help Us All
(and Why Libertarian “Solutions” Won’t Work)
Christians have a duty to help the poor since this is a biblical mandate (Deut. 15:7-11). Unfortunately, our monetary system is designed in such a way that it redistributes wealth from the poor to the rich. Thus, no matter how generous we may be, we’re caught in a losing battle. These days, even the middle class keeps getting poorer. (If you have any doubts about this, you can learn more by watching this 6-minute video about the wealth gap in the United States).
You may be wondering how our monetary system redistributes wealth from the poor to the rich. Briefly stated, wealthy people own the biggest banks. These banks create money as debt through the Federal Reserve Bank. This debt is owed by us taxpayers, and we pay billions of dollars in interest on it every year. Money has to be created, but it makes no sense for it to be created as debt that you and I owe to the banks? I don’t think so.
When there’s something so fundamentally wrong with our economic system that it results in widespread suffering and even death for people in poverty, that’s a biblical concern. Therefore, this article on how to fix our monetary system should be of interest to all Christians.
I will explain for you, in non-technical language, how our debt-based money system works, and why some popular, proposed “solutions” will not work.
In our debt-based money system, private banks operating through the Federal Reserve System have been granted the right to create and lend money that has never before existed. As a consequence, even though the United States claims to be a sovereign nation, we need foreign countries such as China to buy our debt so that our own Congress can continue to spend money.
This makes no sense since our Constitution gave Congress has the sole right to issue the currency. Out-of-control spending is bad, but it’s much worse when we have to borrow money from a foreign country to do it. The intention behind this scheme was not for the U.S. to borrow money from foreign nations, even though that is the outcome. The system is designed to allow the Federal Reserve to obtain money from any and all lenders.
Under the Federal Reserve System, any person, organization, or government can profit by buying bonds and receiving free interest at taxpayer expense. For 2013, this amounted to a $415 billion transfer of wealth from mostly middle class U.S. taxpayers to wealthy bondholders. We get dollars—the right to our own currency—in exchange for becoming debtors. Later, our creditors get our dollars back in repayment of principal and interest. This is like a hellish merry-go-round that gets us nowhere.
Under the circumstances, we shouldn’t be surprised that America’s middle class is slowly disappearing. Every American is enslaved with debts totaling more than $186,000 for every man, woman, and child.
These matters should be of the utmost concern to each of us, especially to Christians.
I’ve studied economics, currencies, and other investment-related matters carefully, and always with an eye on what the Bible teaches. In the Old Testament, God forbad the charging of interest (which was formerly called “usury”) because it was a primary means of defrauding the poor. God condemned those who practiced usury through His prophets, who were wise to their schemes.
Rich oppressors, both in ancient times and today, start by “generously” lending money to all. They ended up taking possession of property and land. Mark Twain described the nature of bank lending in these words:
A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.
The Israelites didn’t observe either the seventh-year Sabbaths, or the Years of Jubilee, when land was supposed to have been returned to the original owners. As a result of their disobedience in this and other important matters, God sent the people into exile.
When it comes to moneylending, the end game hasn’t changed since Old Testament times. Debt, ranging from credit card debt to interest payments on national deficits, is a leading cause of poverty in our world.
We’ve hoped in vain that our nation, together with the world as a whole, would return to prosperous times. We need genuine economic recoveries, not “jobless” recoveries and further banking scandals. Unfortunately, this isn’t possible under the existing monetary and financial systems.
When currency is issued as debt, the public as a whole cannot prosper. For example, a bank may loan you money to buy a house, but who is providing the interest money needed to repay that loan? You may reply that you will provide that money through your labor. However, the real question is this: Who is putting the money needed by you and other borrowers into the economy? The answer is, nobody. That interest money doesn’t enter the economy, except as someone else’s debt. This is a harsh economic reality, which inevitably forces many borrowers into default.
I hope you are a hard-working person with outstanding qualifications, and that you can either avoid debt or always pay your debts. Regardless, my point is that our economic system is inherently unfair. It is designed in such a way that everyone can’t possibly pay their debts. In fact, as more people repay their debts, less money circulates in the economy, and the economy gets worse. Thus, the remaining debtors find it that much harder to obtain the money they need to repay their debts.
Many taxpayers are poor, and none should have to pay interest (through taxation) on the money our government spends. God cannot favor a system such as this, in which working people are needlessly saddled with a debt-based currency.
As I had mentioned, the U.S. Constitution gave Congress the lawful right to issue the currency and regulate its value. As I will explain, this is a moral right that belongs to the people of every nation, through their lawful representatives.
Alternative Banking System Proposals
Everything written above highlights the need for a new monetary system in the United States, and in other nations throughout the world. You’ve probably heard about some proposals for an alternative monetary system. I will examine two popular ideas and explain why they haven’t worked, and indeed cannot work.
Problems With the Gold Standard
Many “experts” today, including Ron and Rand Paul, have come up with nothing more original than the tried-and-failed gold standard. Since I explained in Part 1 of “A Plan to Restore Sound Money and Prosperity” why this isn’t a good idea, I will only review this briefly here.
One problem is that the gold supply is limited and inflexible. The same is true of silver. Gold, silver, and other precious metals are needed for industrial purposes and for jewelry. Therefore, we simply can’t afford to divert the world’s supply into coinage and warehouses to back our currencies.
The thought of a gold-backed currency captivates people who like the shiny stuff. However, please be forewarned that elitists can easily afford to buy gold in large quantities. Under a gold standard, this gives them power to manipulate the economy, swindle the taxpayers, and profit at poor people’s expense. Other problems with the gold standard are explained at this Wikipedia article.
Let’s also keep in mind that a lack of hard money was the original problem that resulted in the creation of paper currency.
We all know (as of this writing) that the U.S. dollar has value, but have you considered why this is so? It’s not because dollars are backed by gold, for they certainly are not. Rather, it’s because each one represents a small portion of the United States’ economic output, as well as the stability of our government and other factors which I’ll soon explain. This is real value, as long as the supply of dollars is limited. It’s easier to limit the supply of a currency than to endlessly dig holes into the ground looking for gold. (Miners have already dug 2.4 miles into the ground in this South African gold mine).
Problems With Private Money Creation
The famous Austrian economist Friedrich Hayek proposed in “A Free Market Monetary System” that private bankers should issue currencies in a competitive marketplace, and let the public decide which currencies to use. He reasoned that, whereas governments are always undisciplined and untrustworthy (cf. Rom. 13:1-7), we can trust private enterprises to do what is right (cf. Gen. 6:5, Mic. 7:2-4). Hayek wrote:
I am more convinced than ever that if we ever again are going to have a decent money, it will not come from government: it will be issued by private enterprise, because providing the public with good money which it can trust and use can not only be an extremely profitable business; it imposes on the issuer a discipline to which the government has never been and cannot be subject…. (boldfacing added)
This is a bizarre statement for a couple of reasons. First, in the same lecture Hayek gave us three examples of governments that kept their currency stable because they listened to “good economists.” They all did so by restricting the money supply, which begs the question of why Hayek insists that we can’t trust any government to do this. Second, Hayek failed to address past and ongoing problems with private entities issuing currency, as the Federal Reserve System does in the United States. In case you didn’t know, the Federal Reserve is a private corporation that is owned and controlled by a banking cartel. It makes no sense to put the blame for our Federal Reserve System entirely on the government, and not at all on private bankers. Anyway, to continue…
If Hayek was only suggesting that people and organizations should be free to create and exchange “money,” I would agree in principle. People should be free to exchange bus tokens, casino chips, cigarettes, Bitcoins, or any currency they wish. Apart from anti-counterfeiting laws, a government shouldn’t have a monopoly right to issue money. So for me, it’s not a question of whether people should have the freedom to exchange things, speculate, and experience gain or loss.
If Libertarians go further by arguing that governments or publicly-owned banks or treasuries should not be allowed to issue money, or that they should have to “level the playing field” by accepting funny money, I would disagree. I’m using the term “funny money” in reference to privately-issued money that has no proven record of widespread acceptance and relative stability.
The history of private currencies is even more dismal than that of government-issued currencies. Let’s consider four of the biggest problems…
1. Currency Supply is a Natural Monopoly
I could go further and say currency issuance is naturally a government monopoly. Private currency issuers, having neither military forces nor tax collectors at their disposal, have a greater initial burden than any but the weakest of governments. The issuer must convince people that it will limit the currency supply. Historically, banks have had to back their paper currency with verifiable assets such as gold or interest-bearing loans.
Interestingly, Americans got the Federal Reserve System and income taxes in the same year—1913. It would appear that bankers hate to have to back a currency with their own assets.
When private currency issuers compete with one another, chaos reigns. Imagine going into a grocery store and trying to find out how much you can buy with say, 4.21 in Citibank dollars, 3.62 in Goldman Sachs dollars, and 5.37 in JP Morgan Chase dollars. In addition, you will likely have had to throw away some money after the issuing bank, whichever one it was, declared bankruptcy. Under a “laissez faire” money system, we would constantly have to be in “buyer beware” mode—not just at the Walmart, but with our life savings!
We all like to have a choice of where to shop and what to buy. With money, on the other hand, we prefer a lack of choice. Instead, we want convenience and stable value.
Currency competition doesn’t lower costs, but greatly increases the cost and time involved in financial transactions. Having to choose among many currencies makes speculators of us all.
The ideal scenario is a monopoly in which everyone uses a single, relatively stable currency. Producers, merchants, and buyers all want to lower their costs by finding the best currency and, if feasible, rewarding the issuer with a veritable monopoly.
Of course, private banks understand this perfectly well. Consequently, big banks such as (to borrow from my earlier example) Citibank, Goldman Sachs, and JP Morgan Chase might merge their operations to issue a single currency. We shouldn’t be surprised if this new banking coalition strangely begins to resemble the composition of the private banks behind the Federal Reserve.
Perhaps some Libertarians anticipate that as soon as we set out to change the currency regime, the big banks that they (and all of us) complain about will simply give up and go away. The burden is entirely on them to justify such an unreasonable and naïve expectation.
Incidentally, this is the problem with many academics. They tend to become so preoccupied with theories that they fail to respond to what’s going on in the real world.
Since currency issuance is a natural monopoly, we need to explore the ramifications of private banks being in possession of a currency monopoly. The quick, logical answer is that things wouldn’t change much from the present conditions. However, let’s examine the question in more detail…
2. A Monopolistic Currency Will Become a Fiat Currency
When a private currency becomes so widely accepted that it dominates the marketplace, the general public will once again have a convenient, universally-accepted medium of exchange. The nation could have spared itself the trouble by immediately obtaining this advantage through a publicly-owned central bank. Again, however, many people have been indoctrinated to believe that governments are always bad and untrustworthy.
The issuing bank will now hold the dominant place in the nation’s economy. The currency, which started out as a private asset, has also become a vital public asset, essential to the nation’s economic health and security.
The currency issuer, no matter how wealthy, will surely not have (or not be willing to put up) sufficient assets to back the enormous amount of money that will now be in circulation. Practically speaking, there isn’t enough gold in the world to back very much paper money.
Initially, the bank will quietly lower any real asset backing behind the currency. Then, like a snake that has difficulty swallowing an elephant, the issuing bank will look for outside help.
Predictably, the bank (or banking cartel) will turn to the government with a perfectly reasonable argument. It will warn the government that if the general public makes a run on the currency, it can’t possibly redeem all of it for gold (or for whatever is supposed to be backing the currency). The issuing bank will remind the government of the need to support the economy and protect the national security. Having twisted the government’s “arm,” the bank is likely to make at least two demands:
- That the government make it mandatory for everyone to accept only that currency as legal tender;
- That the bank be allowed to drastically lower, or entirely eliminate asset backing of the currency.
Now, the issuing bank no longer has to worry about currency demand because that will have been guaranteed by government decree. In addition, it will no longer have to worry about a bank run. It will still be collecting profits, but will no longer be risking anything.
The bank will further seek permission to engage in fractional reserve lending, assuming that this had appropriately been banned. Personalities in the media and academia can be expected to pave the way by talking about what a good idea this is.
Libertarians will surely rise up and blame everything on the government. However, the true source of the problem will be the private banks that the Libertarians themselves will have empowered.
The public will now have a national currency that is also privately issued, and that is fiat money. We’ll be back to “square one” since this will be very much like the existing Federal Reserve System. As predictable as this outcome appears, most Libertarians say they are against government involvement, fiat currency, fractional reserve lending, etc.
3. A Monopolistic, Privately-Issued Currency Will Lead to Further Inflation and Financial Crises
Again, once a particular currency is both universal and mandatory, the door will be open to unrestricted inflation. It’s true that Hayek had hoped that private banks would seek profit by keeping their currency stable. However, that’s “small potatoes” compared to the kind of profits that can be obtained by gradually inflating a currency. In fact, the potential profits and power are so enormous that Jesus’ words are applicable: “What will it profit a man if he gains the whole world, and loses his soul?” (Mark 8:36).
It does no good to treat a wolf like a lamb when it has already revealed its true nature. Similarly, it’s unreasonable to expect the wealthiest banks to lower their expectations when they’ve already proven that they want it all. Uttering words like “liberty” and “free markets” won’t change anything.
The big banks will repeatedly seek to be in a position in which they can control a single currency, which they will then debase through inflation. They have many potential ways to reach that goal. One could be by letting people experience the chaos and financial losses that go along with any unregulated, free market currency experiment. This could easily leave people crying out for a single currency at any cost.
The banking cartel’s goal will be to eliminate the competition and control both the currency supply and interest rates. Once these goals have been accomplished, we can’t expect them to be managed in a way that serves the public interest. Instead, the bankers will rob the public by continuous inflation, and by creating massive financial bubbles that lead to one economic crisis after another..
Notably, the currency issuer will have no incentive to not inflate and debase the currency. After all, inflation brings direct profits to the bank that issues the money. Libertarians can’t argue with the fact that businesses exist to earn profits.
The issuing bank’s primary concern will be how to divert the public’s attention from the inflation, and from its economic and financial manipulations for as long as possible. The media will gladly cooperate because that will be profitable for them. Anyway, the public has already been conditioned to accept boom and bust cycles, not as the result of financial manipulations, but presumably as inevitable stages of a healthy “business cycle.” We also have been taught to welcome a limited amount of inflation as “normal.”
Many people even hold the misguided view that inflation naturally contributes to and/or results from economic growth. While it’s true that economic growth requires an increased supply of money, this doesn’t have to be inflationary.
4. Private Currency Issuers Steal from the Public
I’m familiar with Libertarian warnings against envy, and against making judgments about wealthy people. However, this has nothing to do with personal judgments. For argument’s sake, we could be talking about people who are like Jesus Christ in nearly every respect. Regardless, private currency issuers inevitably steal from the general public. I will explain why this is so.
As I described our not-so-hypothetical scenario, the currency issuer may have started with a gold-backed currency, but later withdrew all guarantees of redeemability. The currency’s value will now be upheld entirely by trust, and by government-enforced, universal demand.
The currency issuing bank will have received its original gold investment back, and much more besides. Henceforth, while putting no assets at risk, it can freely profit by issuing more currency every year, and by timing its investments during the boom and bust cycles that the bank itself creates.
It should be obvious that this activity amounts to stealing from the public. This is no hypothetical example because it describes what the Federal Reserve System is doing even now.
I will provide further reasons why this kind of monetary system is rooted in theft…
Anyone who has monopoly power to issue a nation’s currency occupies a highly privileged position. Such a bank has the exclusive right to print money and put it into circulation for obscene profits.
A “free market” supporter may reply that the public will owe the private bankers these privileges because they will have gone to the trouble of earning our trust in the currency. (A publicly owned and accountable central bank could much more easily earn, and less easily betray the public’s trust, but I’m responding to the “free market supporters” here).
Private currency issuers engage in theft because any widely accepted currency’s value is mainly derived from public sector resources, not from the resources of any private bank or group of banks. In fact, regardless of who issues a national currency, nearly 100 percent of the value will be derived from factors such as these:
- The nation’s economic strength, resulting from countless, individual contributions
- Economic indicators such as the employment rate, the CPI, and industrial production
- Community values, ranging from inventiveness to entrepreneurship, to respect for contracts and obligations
- Public and private sector savings vs. indebtedness
- Governmental recognition of a currency as legal tender
- The government’s foreign currency and gold reserves
- The nation’s military strength and border security
- The legitimacy and political stability of the government
- The nation’s external trade balance
- International investment in the currency & liquidity
- Current and expected rates of inflation
- Current and expected interest rates
- Ultimately, God’s blessing gives value to all people and things.
If we set aside the last item as one that most economists won’t acknowledge, we can see that a nation’s citizens are directly responsible for nearly the entire value of their national currency. The people can further strengthen both the economy and the currency by electing trustworthy and capable leaders.
Even though I included gold reserves on the list, by no means is this as important as the “gold bugs” make it out to be. In fact, it’s non-essential!
When people have extra cash, they seldom want to exchange it for gold. Instead, they want to put it in a demand (i.e., checking) account or an interest-bearing account (e.g., savings or bonds); or they may invest it in the economy (e.g., stocks). For anyone who wants to “invest” in gold, that commodity will always be available at some price.
In the final analysis, gold has no magical, economy-stabilizing properties, but is simply another commodity. Suppose that we were to exchange things like gold, cigarettes, and laundry detergent instead of electronic digits and paper notes. In that case, we would have a barter system, not a real currency.
To put it in the simplest terms, a currency’s value is determined by supply and demand, not by any intrinsic value.
In the earlier quote, Hayek cited the “extreme” profitability of money issuance as a reason why governments shouldn’t issue money. In fact, the opposite is true. More and more currency can be issued as an economy grows through such factors as increased productivity and higher employment. No private business has a right to claim this money as its own because it will have been earned by the general public. Those profits should go only to a representative government that is obligated to spend any and all revenues for the public good.
Libertarians who, like Hayek, think governments are fundamentally incapable of being accountable and doing good, are greatly mistaken. I’ve learned from the Bible that God has provided all things for our benefit. This includes governments which, like the church and the family, are divinely ordained institutions. The same God Who raised up kings such as Cyrus of Persia to do His will can also give us good governance. For our part, we as citizens must have the wisdom and fortitude to not only elect good leaders, but also put systems in place to hold them accountable.
Christians who think that Satan is the ruler of this world, and that he somehow has control over all governments have accepted false doctrines. With tragic consequences, they deny the Lordship of Christ and the sovereignty of our God in this world. Lest anyone think me guilty of devising clever, yet humanly conceived arguments against this false teaching, I’ve compiled this list of Bible verses that refute it. I explained in my post on Joseph’s Rise to Power why God’s children ought to, as much as possible, be optimistic and act accordingly.
Christians should set the example to the world as people who uniquely reflect God’s righteous character. Though we have been guilty of this, we must no longer approach politics in a worldly manner, as power-seekers. Instead, we should be servants with meek and humble hearts. We need to be proactive and dominion-oriented so that we may do the will of God. Our Lord desires to do that which is in the best interests of all people.
Jesus recognized the state’s right to issue money (Mk. 12:13-17), but He forcibly evicted corrupt, private money changers from the temple (Jn. 2:14-15). The history of money is informative, but that can’t be discussed in this article.
Pious Christians may wonder why I, or for that matter any Christian, should study economic issues from a biblical perspective. However, if we show no interest in systemic changes that can help poor people and/or society in general, we neglect one of the things that Jesus was most passionate about. Some Christians not only ignore Jesus’ prayer that His Father’s will should be done on earth as it is in heaven, but actively oppose Christians who try to fulfill it. These hypocrites relegate Heaven to the afterlife, and teach that while we’re here, we should do our best to accommodate Hell on earth. These irrelevant, self-righteous, anti-intellectual slackers spend much of their time complaining about unbelievers, even while they themselves do little or nothing to change the status quo!
God has called all believers to get off our behinds and do good in the world. This isn’t about trying to be justified by works because we’re already justified by faith. I believe we need to take the Old Testament more seriously, and also think more seriously about concepts such as “dominion,” “law,” and “justice.”
The thought of Jesus driving out the money changers caused me to stray from my main topic. Jesus didn’t want to multiply bread and fishes for poor people day after day. Instead, He wanted to establish mercy and justice at every level of society, through believers such as those who are now multiplied throughout the world. With that being said, I will now wrap this up…
When we allow private individuals and corporations to issue our currency, we put misplaced trust in them and resist God’s established order. God warned us through the prophet Jeremiah,“Cursed is the one who trusts in man” (17:5).
The idea that any private entity can add significant value to a paper currency merely by issuing it is absurd. A prime example can be seen in how our Federal Reserve issues money out of thin air, as interest-bearing debt! Does the Fed actually do anything to earn this money? No! It only creates financial bubbles, which lead to debt implosions, bank failures, economic crises, and compulsory taxpayer bailouts for big bankers. Throughout this process, the rich keep getting richer, and the poor keep getting poorer.
A currency issuer can only add value by limiting the amount of currency in circulation, and/or by promising to redeem paper or electronic money for a fixed amount of assets such as coinage. We can’t count on a private bank to fulfill these promises indefinitely, but only until it has achieved its nefarious purposes.
According to Proverbs 22:7, “The rich rule over the poor, and the borrower is servant to the lender.” As this passage suggests, we should resist debt slavery of the kind we can expect from private money creation and money lending. Yes, even pious Christians who want us all to “suffer like Jesus” should resist a being subjugated to a state of servility to the evil powers of this world. God never revoked the call to take dominion (Gen. 1:26-28), but only changed the strategy at Christ’s appearing. (There I quoted from the Old Testament twice, and used the word “dominion”!)
Theft-Free, Debt-Free Money
Since the people who use a currency also give it value, they should profit from its issuance, not any private issuer. Again, currency issuance should therefore be the responsibility of the congress or legislature, as was required under the U.S. Constitution. The legislative body may choose to delegate some authority to a publicly-owned central bank, but only if that helps to ensure maximum accountability. No private bank or banking cartel should be the least bit involved in issuing a nation’s currency. In addition, no currency should ever be newly issued as debt. Money may be created out as needed for the public good, but debt must never originate from thin air.
True, I am saying that the Congress should be able to create money out of thin air. However, there’s no other way for money to exist.
Let me illustrate this point through some rather absurd questions. Have you ever worked so hard and so productively that dollars simply appeared before you?… If someone gave you a vault full of gold, would dollars suddenly appear?… In either instance, would extra digits suddenly appear in your bank account? These examples show that wealth creation is not the same as money creation. When money is first created, it always comes from nothing.
This fact should give us all the more reason to regard money issuance with the utmost seriousness. We must be careful about who issues money; who benefits; and how to ensure that new money is justified. Money should be created by the government to fill an economic need for currency stability and liquidity, not to enrich the money creator.
Under a free market currency system, big banks can initially be expected to do everything they can to earn the public’s trust in their banknotes. In the long run, however, their goal will be to maximize private profits at the public’s expense. They will organize and gain monopoly powers; print money in excess; lend irresponsibly; and manipulate interest rates, financial markets, and the overall economy for their own gain.
Local and community banks are not the problem. It’s the “too big to fail” banks that routinely experience largely unseen conflicts of interest with the public. These may involve corrupt executives, big shareholders, competitors, large depositors, financial services clients, government bureaucrats, federal deposit insurance, lawyers, Wall Street, or its own lending and derivatives portfolio. Big banks, especially when working in conjunction with one another, can easily gain sufficient financial strength to manipulate outcomes in their own favor. That said, the absolute worst abuses of power occur when private banks are involved in money creation.
I hope this has helped you to better understand where our money comes from, and why this topic is of vital importance to us all. If we want to know how to help the poor, we can’t simply ignore the monetary system and how it functions.
You may understandably feel as if there’s nothing that you can do about this situation. However, seldom is this ever true, especially if you’re a child of God by faith in Jesus Christ. You can pray about this and share this information with others. Finally, when God gives our nation an opportunity to replace the present system after it crashes like a freight train, you can one of a select few people who speaks out and becomes a voice for positive change.