10. A Biblical Monetary System

CHAPTER TEN

A BIBLICAL MONETARY SYSTEM

Owe no man anything . . . (Romans 13:8a)

In chapter 7 of Inherit the Earth, another book in the Biblical Blueprints series, I deal with debt bondage. The Bible regards debt as a form of servitude: “The borrower is servant to the lender” (Proverbs 22:7b).

No monetary system which is based on debt is Biblically legitimate. Such a system enslaves the economy to those who set the monetary rules of the game. If money were not debt money, the Federal Reserve System and other central banks could not exist. The profit-seeking elites that control a nation’s monetary policies could not exercise any power at all. The market would determine what money is and what isn’t. The market would determine what the prevailing rates of interest should be.

The Biblical principles of money are quite simple:

1. Standard weights and measures, with penalties imposed by the civil government against those who tamper with the scales.

2. A prohibition on all forms of multiple indebtedness, meaning fractional reserve banking.

3. Competitive entry into the silversmith, goldsmith, or any other smith business.

4. No one is to be compelled by law to accept any form of money. (This is not stated in the Bible, but it follows from the first three principles, which are based on voluntarism.) This means no legal tender laws (compulsory acceptance).

The Biblical view is clear: the State is not to be trusted with the right to issue money.

This is a radical view of money today. It would have been equally radical in any of the ancient empires. They were States that demanded full sovereignty. They centralized power. They claimed to be divine orders. They therefore claimed a monopoly over the issuing of money.

The State that claims the authority to issue money, and especially the sole right to issue money, is claiming the right to misuse the people’s trust. Furthermore, throughout history, few States have been able to maintain this right without defrauding their citizens. In fact, there is only one example in human history of long-term stable money: Byzantium (the Eastern Christian Roman Empire: 800 years of gold coins).

Besides, the fractional reserve bankers almost always succeed in gaining from the State the power of money creation. Central bankers eventually replace the State as the dominant influence over money. The politicians are too busy buying votes with tax money to pay much attention to the subtleties of central banking. So, State money becomes bankers’ money eventually.

Silver or Gold?

One of the common mistakes that amateur, self-taught economists tend to make is to imagine that the value of anything is fixed. “Gold doesn’t change in value; everything changes in relation to gold.” I have read too many pamphlets that say things like this.

Only one thing has fixed value: the Bible, the Word of God. But even it doesn’t have fixed market value.

People discover gold. They also find cheaper ways to get more gold out of ore. People discover silver, too. Therefore, the supply of gold changes, and so does the supply of silver. Demand also changes for both metals. So, how could they possibly not change in value? They change in value every day on the world’s commodity markets, and their prices change in relation to each other. Any so-called 16-to-one ratio between silver and gold is a figment of people’s imagination; it’s a legacy of an early price control of the U.S. government in the late 1700s—a legacy that called Gresham’s law into effect, alternately driving out of circulation either silver or gold, depending on which one was artificially undervalued by the Federal government at any point in U.S. history.

The problem is people think there has to be only one “supreme” money defined in value by the government. Yet we voluntarily use paper money, checks, credit cards, and token coins: pennies, nickels, dimes, etc. We used to use silver coins, and before that, gold coins. We once used private banknotes, before the Federal government started taxing them, and the banks switched to checks (untaxed).

Why do we think we need one “supreme” form of State-defined money? The only State-defined form of money that is legitimate is tax money. The government has the authority to determine what it will accept as payment from among the various types of privately produced moneys that become established through market competition. But the State cannot be trusted to establish its own money. It always betrays this trust. It counterfeits its own currency. It inflates.

The U.S. Constitution specifies that gold and silver alone may be issued by the state governments as legal tender currency (Article I, Section 10). The Founding Fathers clearly recognized the limits that metal moneys place on governments. Unfortunately, they neglected to place the U.S. government under a similar restriction. The first great political battle of the Federal government after the Constitution was over the establishment of a privately owned central bank, which Alexander Hamilton wanted and Jefferson opposed. Hamilton won, and the U.S. began its long, though intermittent, history of fractional reserve central banking.

The important point is that the State must not be allowed to establish any fixed price between any two forms of money. I am not speaking here of warehouse receipts that function as a substitute for metal money. If a warehouse receipt promises to pay one ounce of gold, it must have one ounce of gold in reserve. I am speaking here of the exchange price between two market-created moneys: gold vs. silver, copper vs. silver, dollars vs. yen, etc. The government must not enforce price controls on anything, including money.

To fix a price between silver and gold brings Gresham’s law into operation. The artificially overvalued currency will drive out of circulation the artificially undervalued currency. Gold and silver aren’t immune from this law of price-controlled moneys. Governments, including the U.S. government, have tried to discover “the” price between gold and silver, and invariably this has led to the disappearance of one of the two metals. One of them will be artificially undervalued in comparison to what the free market determines. Fixing the exchange value between two forms of money is just another fruitless example of government price controls.

Never forget, there’s no such thing as a price control. There are only people controls. Price controls in fact restrict what people are allowed to do. It interferes with their freedom.

Similarly, the government is not to set up price controls over interest rates. Interest rate ceilings restrict the voluntary agreements between borrowers and lenders. The State should enforce all moral contracts, and there is nothing in the Bible that indicates that any particular rate of interest is immoral.

The Gold Standard

The gold standard is not theoretically preferable to any other honest money standard. The only standard that matters is the no fractional reserves standard, coupled with the no false balances standard.

Gold historically has been one of the two most preferred standards, along with silver. It has all the characteristics of money: divisibility, transportability, durability, recognizability, and scarcity (high value in relation to weight and volume). It has been a money standard.

Most important, gold is a rare metal. It is therefore expensive to mine. Not much new gold comes into circulation every year. This keeps its price relatively stable but normally appreciating in relation to mass-produced goods and services. Prices of goods denominated in gold should normally be slowly falling in a productive, growing economy. (The hand-held calculator for example.)

Governments should probably collect taxes in gold. Gold is convenient. Income in other moneys can be computed (with market prices day by day, or month by month) in terms of gold. Governments should pay in gold, too.

If the State begins to issue “tax coins,” it has begun that slow, grim process of recapturing sovereignty over money. Better for the State simply to specify so many ounces of pure gold, and allow the taxpayer to select the form. If some firm is cheating, the government then has a high incentive to prosecute. It’s good for the government to prosecute those who violate the requirement of honest weights and measures.

For the State to say that only gold should circulate is a restriction on individual liberty. For the State to say that only gold is legal tender (a legally mandatory form of money) is also a violation of individual liberty. Let people decide how and what they use as money provided that no fractional reserves are involved.

A traditional gold standard requires the State to define its official currency in terms of weight and fineness of gold, and then to buy and sell gold at this defined price. This gets the State into the money business. There is no warrant for this practice in the history of Old Testament Israel. The New Testament example is the Roman Empire—not a morally uplifting example.

A traditional gold standard is better than a fiat (unbacked) money standard, but it transfers too much sovereignty to the State. It also allows the State to “change the rules” at its own convenience, that is, to redefine the currency unit (usually by defrauding present holders of the paper currency: less gold per currency unit), or to cease allowing citizens to make withdrawals. Better to have the State policing private issuers of gold and warehouse receipts to gold, and then to collect its taxes in a specified form of private currency. Under such an arrangement, the politicians have a greater incentive to police the State’s source of tax revenues than they do to police the State’s own monetary practices.

What freedom produces is parallel standards. Various forms of money compete with each other. The State is to establish no fixed, bureaucratic price between moneys. The decisions of free men can then determine which form or forms of money become most acceptable. There is nothing magic about money. It is simply the most marketable commodity. The market establishes this, not the coercive power of the State. Money is the product of voluntary human action, not of bureaucratic design. Money is the product of freedom, and it reinforces freedom.

Banking

What would 100 percent reserve banking look like? Businessmen are creative. We cannot be sure. They will find ways to cheat, too. But we can sketch the basic outlines.

Most important, there would be no state or Federal charters for banks. The State-granted monopoly of money creation would end. Do-it-yourself banking would become the model. Only one legal rule would restrict banking: no fractional reserves.

What would this mean? First, every depositor will have choices. First, he can deposit his money in a bank for safekeeping, and pay a fee for the service. Presumably, this would be an extension of the safety deposit box function. The bank would segregate these accounts and not allow the money to be loaned out. Not only would no interest be paid on these accounts, but a fee would also be imposed. A “free” service indicates theft somewhere in the system: a violation of the 100 percent reserve rule. The only way for the bank to profit on such deposits would be through charging the user for services rendered. An obvious service would be check-writing privileges.

Second, there would be another type of deposit from which loans could be made. These loans would be of a specified period at an agreed-upon rate of interest. The depositor might be given a choice: a higher rate of interest, but without the bank’s guaranteeing repayment from the lender, or a bank guarantee of repayment, at a lower rate of interest.

The loans would be true loans. There would be no provision for early withdrawal by the depositor. The loaned-out money is gone. Two people cannot write checks on the same deposit, depositor and borrower. If the depositor needed money before the loan came due, he could borrow the money from the bank, using his note as collateral.

Both sides of the loan would be of equal time length. This way, bankers would not be able to “lend long” and “borrow short.” They would not be able to loan out money for long periods, yet also guarantee to return deposits on demand. This is what corrupt warehouse owners do when they issue more receipts for gold than they have gold on reserve, and then use gold deposited by one person to pay off the gold withdrawer. Every transaction would be time-specific. There would be no long-term loans without long-term lenders.

This would protect the banking system from bank runs. It would also protect the community from counterfeit money being created by fractional reserve bankers.

Government bank examiners would check the banks in the same way that they check scales of retail sellers. They would see to it that every loan had a corresponding deposit. Although the bank would be allowed to pool loans of the same length of maturity (in order to decrease the risk to a depositor that “his” debtor might default on the loan), no lending depositor would have check-writing privileges. Check-writing privileges would be offered only to those people who put their money in a fee-for-service safekeeping account.

This may sound confusing, but it’s not nearly so confusing as central banking, fractional reserve requirements, the monetization of debt, and other horrors of the modern banking system.

A 100 percent reserve banking program is simple in principle: something for something, and nothing for nothing. No “free” anything. No impossible promises: “You can write checks at any time against money that we already loaned out, so that we can pay you interest.” When you are promised the use of money that has been loaned out, you know you’re getting conned. When they also pay you interest on the money you can use any time, you really know you’re getting conned.

If Blondie comes to Dagwood and asks to borrow money from him so that she can buy some new hats, but she also promises him that he can have his money back at any time, plus she’ll pay him interest on it, he would probably know better. Even Dagwood isn’t that stupid. But he’ll deposit his money in an interest-paying NOW account. Why? Because the bank promises him that there are 5,000 other Dagwoods just as stupid as he is, so they offset each other, and the deal will work.

Just as it worked in 1930–33, when 6,000 banks failed in the U.S. Or just as it worked in the mass inflation of Germany in 1923, when a dollar at the end bought eleven trillion German marks on the black market.

Banks and Dominion

The Bible says to owe no man anything. This is a good rule for Christians. But it also says that the sign of a God-prospered nation is that people will loan to foreigners, thereby bringing them under some degree of submission.

The Hebrews were allowed to loan money to strangers in the land and foreigners and still collect payment beyond the seventh year. Why? Because debt is a means to bring other people under your authority. The Bible teaches that evil people should be under the authority of God’s law, as administered by God’s people. Extending loans to others was a means of dominion.

In times of God’s blessings, Israel was to lend abroad. “The Lord will open to you His good treasure, the heavens, to give the rain to your land in its season, and to bless all the work of your hand. You shall lend to many nations, but you shalt not borrow” (Deuteronomy 28:12).

In times of God’s cursings, Israel would fall into debt to foreigners: “The stranger that is within thee shall get up above thee very high; and thou shalt come down very low. He shall lend to thee, and thou shalt not lend to him: he shall be the head, and thou shalt be the tail” (Deuteronomy 28:43–44).

The pattern is clear: extending credit is a tool of oppression in the hands of evil men, but extending credit is a tool of dominion in the hands of God’s people. God’s kingdom is to be extended over ethical rebels. Ethical rebels are snared and brought under God’s authority by means of debt.

But Christians must not be foolish. They must not loan to those unwilling to repay. That would trap them. Their representatives, profit-seeking bankers, will be more careful in selecting credit-worthy bondsmen if the State and State-chartered banking monopolies do not insure bad banks at the expense of the taxpayers. Christians should be willing to deposit money in 100 percent reserve banks, thereby allowing non-Christians to learn service through debt bondage. Like apprentices, debt-burdened pagans can learn what it means to work hard for a demanding taskmaster. They will think twice before going into debt again.

Conclusion

The Biblical case for freedom in money is the same as the Biblical case for freedom in general. The State is to prohibit fraud and violence. The rest is up to individuals.

Fractional reserve banking is fraudulent. It is a violation of the Biblical principle of honest weights and measures. Debasing metal coinage is fraudulent. It is also a violation of the principle of honest weights and measures. Government-issued money is a violation of customer authority sovereignty in money. It is a power that the State invariably violates eventually.

Within these general guidelines, “anything goes.” Silver money, gold money, platinum money, salt, wampum, anything. Let the buyer decide, and let the buyer beware. Contracts should be written in any way chosen by the parties involved, in whatever form of currency they agree to use.

Summary

The development of a Biblical monetary system is based on these concepts:

1. The borrower is servant to the lender.

2. Uncollateralized debt is to be avoided.

3. Money must not be based on debt.

4. Honest weights and measures are to be enforced by State law.

5. Multiple indebtedness is fraudulent, and therefore illegal.

6. Fractional reserve banking involves multiple indebtedness.

7. No one should be compelled to accept any form of currency (no legal tender laws).

8. The State can legitimately establish the form of privately issued currency it will accept as payment of taxes.

9. The big banks eventually capture the control over government monetary policy.

10. There is no fixed value of gold or silver.

11. The State must not fix the price of anything, including the exchange ratios between moneys.

12. Many moneys can exist in an economy.

13. A gold standard has been popular in history.

14. Gold and silver are expensive to mine; hence, they maintain their value relatively well.

15. Traditional gold standards are nevertheless State standards.

16. Freedom of money leads to parallel standards: no fixed price between any two moneys.

17. Bank charters interfere with freedom.

18. For every loan there must be a deposit of correspondingly maturity.

19. Banking can become a means of Christian dominion.

20. Christians extend credit; non-Christians borrow.