What is Money?
This is the show from Monday December 27th, 2010.
SUMMARY: [see Bob's up-to-date and still-brief article at kgov.com/money]
Definition of Money: In the 1990s here at Bob Enyart Live, I wrongly believed that justice required a return to the gold standard, whereby currency was formerly backed by reserves of precious metals. So years ago, you could bring a $10 gold certificate into a bank and receive a certain amount of gold. After studying and thinking about money for years, reading economic texts and reflecting on the Bible, asking questions of internationally renowned economists, I now know that money is not gold or silver. [Update: For clarification, the definition of money is not gold or silver (although they can be used as money). But rather...] money is more like a transferable IOU. Most accurately, money is the accounting of transferable incomplete transactions. That is what money actually is.
Metal, Paper, Web: Back when technology did not exist to support a more effective and lower-cost accounting system, Bible cultures reasonably implemented metal-based money. [Updated sentence thanks to Granite:] Since no one can create gold, it was especially difficult to "counterfeit" money without it being detectable (like by biting a coin, weighing it, etc.) Later, the printing press enabled the convenience of paper currency, and initially, gold was used to back the paper bills that people used to transact business. Eventually, we kept the paper, but dropped the gold backing. Today, many people live without spending much paper currency at all, and they use digital bank accounts and online transactions over the Internet that provide tremendous convenience which helps to grow the economy. The extraordinary benefit to the lives of millions of people from these conveniences outweigh the risks of counterfeits and deception. And finally, there's the phenomenon of cyber cash on the web which is used similarly but not backed by the federal reserve or any national bank, and it's value changes daily based on real-world market pressures expressed in cyberspace.
Here's What Makes the Economy Function: God commands men to "serve one another" (Galatians 5:13). Men shipwrecked onto a deserted island would gradually build an economy as they served one another. And that economy would grow most quickly if these men were free, for the Bible says that, "liberty" provides the "opportunity... [to] serve one another." If they started to keep to themselves, and did not trade goods and services, their economy would sputter and die. So an economy thrives when men serve one another.
Money Is Properly Created By Fiat: If these shipwrecked men washed ashore on a deserted island that had no gold, still, they actually would create money, "by fiat," as they entered into agreements that created something like transferable IOUs. Thus in any nation, every time someone buys a car or a home, etc., on credit, they thereby commit themselves to years of hard work (or at least, to the obligation to pay off the loan), which commitment actually brings more money into existence.
Fractional Banking Is Justifiable: Understanding how money actually functions justifies the modern world's fractional banking system, whereby lenders bring money into existence when making loans, and expunge the principal as it is repaid. God regulated Israel's system of debt, showing that debt is not inherently immoral, but can be good or bad, like fire. As to the particulars of America's Federal Reserve System, the Fed should be audited (it never is), and other methods of implementing money may surpass the benefit of America's current system. The proper way to judge a monetary standard is to evaluate it's effectiveness (accountability) and efficiency (low cost).
Gold is Not the Gold Standard in Money: Requiring a gold standard inflates the value of gold by fiat. As a result there is an unnecessary redistribution of wealth by which various governments transfer wealth to other countries that happen to find gold on their land. This is how America ciphered manufactured goods from Europe in return for inflated gold, and then we demineralized our money, devaluing England's vaults.
Gold Does Not Have Intrinsic Value: Gold does not have intrinsic value but as with all valued items, its worth lies in the eye of the beholder. A wealthy nation dying of thirst would trade its gold for water.
Gold Is Not For Hiding: Basing a nation's currency on gold results in building Fort Knox-like fortresses, hidden from view, and filling them up with gold to back the certificates that are issued. But God did not create gold to be dug up and then forever buried again, stored away from sight in underground vaults, which is an inefficient and extremely expensive way of implementing an accounting system, robbing that gold from its practical uses for technology and beauty.
Today’s Resource: You can enjoy one or two of Bob Enyart’s entertaining and insightful videos each month, mailed to you automatically, simply by subscribing to the BEL Monthly Topical Videos service! Also, you can check out the other great BEL subscription services!
This is the show from Monday December 27th, 2010.
SUMMARY: [see Bob's up-to-date and still-brief article at kgov.com/money]
Definition of Money: In the 1990s here at Bob Enyart Live, I wrongly believed that justice required a return to the gold standard, whereby currency was formerly backed by reserves of precious metals. So years ago, you could bring a $10 gold certificate into a bank and receive a certain amount of gold. After studying and thinking about money for years, reading economic texts and reflecting on the Bible, asking questions of internationally renowned economists, I now know that money is not gold or silver. [Update: For clarification, the definition of money is not gold or silver (although they can be used as money). But rather...] money is more like a transferable IOU. Most accurately, money is the accounting of transferable incomplete transactions. That is what money actually is.
Metal, Paper, Web: Back when technology did not exist to support a more effective and lower-cost accounting system, Bible cultures reasonably implemented metal-based money. [Updated sentence thanks to Granite:] Since no one can create gold, it was especially difficult to "counterfeit" money without it being detectable (like by biting a coin, weighing it, etc.) Later, the printing press enabled the convenience of paper currency, and initially, gold was used to back the paper bills that people used to transact business. Eventually, we kept the paper, but dropped the gold backing. Today, many people live without spending much paper currency at all, and they use digital bank accounts and online transactions over the Internet that provide tremendous convenience which helps to grow the economy. The extraordinary benefit to the lives of millions of people from these conveniences outweigh the risks of counterfeits and deception. And finally, there's the phenomenon of cyber cash on the web which is used similarly but not backed by the federal reserve or any national bank, and it's value changes daily based on real-world market pressures expressed in cyberspace.
Here's What Makes the Economy Function: God commands men to "serve one another" (Galatians 5:13). Men shipwrecked onto a deserted island would gradually build an economy as they served one another. And that economy would grow most quickly if these men were free, for the Bible says that, "liberty" provides the "opportunity... [to] serve one another." If they started to keep to themselves, and did not trade goods and services, their economy would sputter and die. So an economy thrives when men serve one another.
Money Is Properly Created By Fiat: If these shipwrecked men washed ashore on a deserted island that had no gold, still, they actually would create money, "by fiat," as they entered into agreements that created something like transferable IOUs. Thus in any nation, every time someone buys a car or a home, etc., on credit, they thereby commit themselves to years of hard work (or at least, to the obligation to pay off the loan), which commitment actually brings more money into existence.
Fractional Banking Is Justifiable: Understanding how money actually functions justifies the modern world's fractional banking system, whereby lenders bring money into existence when making loans, and expunge the principal as it is repaid. God regulated Israel's system of debt, showing that debt is not inherently immoral, but can be good or bad, like fire. As to the particulars of America's Federal Reserve System, the Fed should be audited (it never is), and other methods of implementing money may surpass the benefit of America's current system. The proper way to judge a monetary standard is to evaluate it's effectiveness (accountability) and efficiency (low cost).
Gold is Not the Gold Standard in Money: Requiring a gold standard inflates the value of gold by fiat. As a result there is an unnecessary redistribution of wealth by which various governments transfer wealth to other countries that happen to find gold on their land. This is how America ciphered manufactured goods from Europe in return for inflated gold, and then we demineralized our money, devaluing England's vaults.
Gold Does Not Have Intrinsic Value: Gold does not have intrinsic value but as with all valued items, its worth lies in the eye of the beholder. A wealthy nation dying of thirst would trade its gold for water.
Gold Is Not For Hiding: Basing a nation's currency on gold results in building Fort Knox-like fortresses, hidden from view, and filling them up with gold to back the certificates that are issued. But God did not create gold to be dug up and then forever buried again, stored away from sight in underground vaults, which is an inefficient and extremely expensive way of implementing an accounting system, robbing that gold from its practical uses for technology and beauty.
Today’s Resource: You can enjoy one or two of Bob Enyart’s entertaining and insightful videos each month, mailed to you automatically, simply by subscribing to the BEL Monthly Topical Videos service! Also, you can check out the other great BEL subscription services!
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