4. Debasing the Currency

CHAPTER FOUR

DEBASING THE CURRENCY

Your silver has become dross, your wine mixed with water. (Isaiah 1:22)

The prophet Isaiah came before the nation of Judah, the Southern Kingdom of the divided nation of Israel, sometime around the year 750 B.C. He began his ministry with a condemnation of the spiritual condition of the people, from the man in the street to the rulers.

The Old Testament prophets didn’t just talk about the internal mental state of the people. They believed in what the Bible teaches, that the heart of a people is reflected in their actions. Almost eight centuries later, Jesus said: “Even so every good tree bears good fruit; but a bad tree brings forth bad fruit. A good tree cannot bear bad fruit, nor can a bad tree bear good fruit. Every tree that does not bear good fruit is cut down, and thrown into the fire. Therefore by their fruits you shall know them” (Matthew 7:17–20).

Jesus also said, “A good man out of the good treasure of his heart brings forth good; and an evil man out of the evil treasure of his heart brings forth evil …” (Luke 6:45a).

Isaiah was saying exactly what Jesus said so many years later. The people were corrupt in their hearts. He used the imagery of dross. What is dross? It is cheap or “base” metal. It is unfavorably compared with precious metals: silver and gold. It can be removed from the precious metal only by melting down the ingot and purging out the base metal, either by heat or by chemical reaction. This, too, is a familiar Bible image: purging away dross by placing the metal into a hot fire.

God spoke to the prophet Ezekiel, who wrote more than a hundred and fifty years after Isaiah: “Son of man, the house of Israel has become all dross to Me: all they are bronze, tin, iron, and lead, in the midst of a furnace; they have become dross from silver” (Ezekiel 22:18).

The Old Testament prophets understood that sin served as dross in Israel. They knew that if people did not “purge away” their spiritual dross voluntarily through personal moral reform, to be followed by political, economic, and institutional moral reform, then God would purge the whole nation. There would be war, or plague, or famine. God will not tolerate moral dross indefinitely. Isaiah announced the warning of God: “I will turn my hand against you, and purely purge away your dross, and take away all your alloy” (Isaiah 1:25).

Weights and Measures

We have already seen in chapter 3 that God requires the civil government to enforce predictable standards of weights and measures. This makes it easier for people to make voluntary economic transactions in a free market. Not only do we say, as buyers and sellers, “What you see is what you get,” we also implicitly say, “What I say you are getting you will get.” More specifically, “What my scale says you are getting is what you will get.”

Our scales are symbols of God’s justice. If we rig our scales to cheat our customers, we are implicitly saying either that God doesn’t care (because He is also at heart a cheater) or that God can’t do anything about it (meaning that He isn’t really God). We are saying that God as Judge of all mankind is a liar. He isn’t really a Judge. Therefore, if we can get the earthly judges to “look the other way,” we can continue to cheat our customers.

Corrupt businessmen want to deal with civil officers who are equally corrupt. They are willing to pay bribes to get them to “look the other way,” to get them to “turn a deaf ear” to those weak people who will be cheated by corrupt scales. This was Isaiah’s accusation against the leaders: they were bribe-seekers, people who did not hear the widow’s plea.

But they were something else. They were also men who refused to prosecute those who tampered with false scales. Remember, the State in this era did not issue coins. Coins were invented about a century later. There is no indication that the State even certified the weight and fineness of any ingots in circulation as money. But the State could prosecute fraud. The authorities could prosecute anyone who was passing dross-filled silver or gold bars as if they were high quality (normal market standard).

Centuries later, when officials learned about the “wonders” of debased money, they made the State the monopolist over money. Instead of serving God by enforcing laws against debased money, politicians took the profits for the State. They “eliminated the middlemen.” They stopped taking bribes from the corrupt money-manufacturers and started stealing from the public directly. One of the main reasons that the Roman Empire fell into the hands of the Christians around 320 A.D. is that the pagan emperors had destroyed the Roman coinage system. Nobody trusted the money, so nobody trusted the State.

The Process of Debasement

Why would any private producer of silver ingots want to debase his product? Because he could get more short-run profits by doing so.

Say that you are a corrupt expert at smelting metals. This skilled trade was a near-secret trade in the ancient world. A secret guild controlled mining and smelting in many cultures. Not many people knew the secrets. This made corruption easier, whenever the guild decided to produce short-term profits for its members.

The smelter could do the following. He had molds into which he poured molten metal. He could pour in pure silver, but silver was a short supply. This was why it was a precious metal. It was a lot cheaper to buy tin. So, the cheater would melt down some tin, and then pour a little tin into the formerly pure liquid silver.

Who would know? The ingot would still look shiny. It would look like silver. How many people would own accurate measures and scales to detect the shift in weight produced by the tin? Hardly anyone.

The silver producer could sell the debased silver in exchange for scarce goods and services. But by adding cheap metals (dross), he could buy more scarce goods and services than he had been able to buy the day before with pure silver. People trusted him. They wouldn’t measure and weigh his ingots. They wouldn’t insult him in this way.

But what if the authorities found out? He could bribe them. Only if the bribe was as valuable as the profits on the deception would he really worry.

It was a simple scheme. Just pour “a little” tin, or other cheap metal, into the molten silver, pour the molten metal into an ingot, and there was instant profit.

What is his profit? The extra silver he has left after the tin has replaced silver in the ingot. But understand: this extra silver can be translated into profit only by “spending it into circulation”—in other words, by selling it in exchange for additional goods and services.

Who Wins, Who Loses?

Our world is a world of scarcity. It is also a world of God-imposed law. The rule says: “You never get something for nothing, except as a gift.” This testifies to God’s mercy in redeeming us: salvation is a gift: “For by grace are ye saved through faith; and that not of yourselves: it is the gift of God” (Ephesians 2:8). But this gift had to be paid for: Jesus died on the cross to meet God’s stiff requirements against sin. “But God commendeth [demonstrates] his love toward us, in that, while we were yet sinners, Christ died for us” (Romans 5:8).

So if someone is able to win by cheating, someone else becomes a loser. It is not a question of everyone winning because there has been new wealth created in the economy. It is profit based on deception. No new wealth has been created. Someone has to lose.

The person who buys the “silver” ingot uses it for something. Perhaps he makes an ornament. He sells the ornament, or barters with it. But the buyer gets stuck with an ornament which is overpriced. Why? Because the original cheater can collect his profit only by selling the extra silver into the market. Someone will make more ornaments (or whatever) with this extra silver. The supply of “silver” ornaments goes up; therefore, the value (price) of the existing supply of “silver” ornaments will drop. The early buyer has overpaid.

What if the cheater just produces ingots, and “spends them into circulation”? He trades the debased ingots for something he wants. If whoever sells him what he wants then turns around and sells the newly produced debased ingot for whatever he wants, he will not be hurt economically. The secret is this: sell the ingot before a lot more phony silver ingots hit the market. In other words, “get while the getting is good.” Or “take the money and run”—run to the nearest store and buy goods with it.

Those who are hurt are those who hold onto these debased ingots too long. As more and more of them flood the market—remember, the only way for the cheaters to collect their profits is to spend the extra silver—one of two things happens. First, if the dross in the new ingots is undetectable, the market price of all silver ingots will fall: more supply, lower price per ingot. Second, if the dross-filled ingots are detectable (inexpensively), then the price of the phony silver ingots will drop in relation to pure silver ingots. This means that there will be two separate price-quote systems in the economy: a pure silver price per good or service, and a dross-filled silver price per good or service.

In either case, the person who is stuck with a pile of dross-filled ingots will lose when prices rise. He sold goods and services at yesterday’s lower price level, but he will buy his goods and services at today’s higher price level, or perhaps at tomorrow’s even higher price level.

Thus, the winners are those who get access to the phony money early, and spend it fast. The losers are those who get access to the phony money later, after prices in general have risen. Worse, what about the people on fixed money incomes, who don’t see their incomes rise at all, but who now face higher prices?

Who are these people likely to be? Pensioners. Small businesses that are barely making money, and widows: the very people that Isaiah said were being harmed by false judgment. They were to be protected, and to fail to do so was a sign of sin within the nation, but especially among the rulers: “You shall not afflict any widow, or fatherless child. If you afflict them in any way, and they cry at all unto Me, I will surely hear their cry; and My wrath will wax hot, and I will kill you with the sword; your wives shall be widows, and your children fatherless” (Exodus 22:22–24).

Conclusion

Civilizations fall when they become morally corrupt. One sign of this corruption in virtually all known instances is debased money. When a society finds that its rulers have debased the currency unit, the people receive a warning: the rulers are corrupt, and if the people continue to support these rulers, then they, too, are corrupt.

In modern times, civil governments have the full support of their people for at least “limited inflation,” meaning “a little corruption” of the money supply.

Summary

We have learned the following lessons from Isaiah’s critique of Judah:

1. A sign of moral corruption was the debased condition of their money.

2. The people were morally corrupt.

3. The corruption of their silver was a violation against God’s law regarding false weights and measures.

4. The profit from debasing silver can come only when the supply of debased ingots increases.

5. The corrupt metal producer produces corrupt metal.

6. He buys more goods and services than would otherwise have been possible.

7. The holders of the debased ingots will eventually suffer losses, as prices of other goods and services rise.

8. The secret of success in a time of corrupt money is rapidly to sell the money for goods and services.

9. Those who are on fixed money incomes are hurt, such as, widows.