Educational Research Analysts  May 2006 Newsletter  
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          what they say now
A Beka Book
Pensacola Christian College (1996)
Absence of Biblical principles of money and bank­ing in treat­ment of history of U.S. money and banking; cover­age of the first and second Banks of the United States omits the original intent of the Con­sti­tu­tion­al Con­ven­tion in voting down a bid to empower the feder­al gov­ern­ment to charter cor­por­ations, such as banks; no mention that the Federal Reserve System provided for an "elastic" money supply, with price con­trols on credit to insure its expan­sion, despite a Consti­tu­tion­al Con­ven­tion vote not to authorize federal emis­sion of bills of credit
Bob Jones University Press
No info on the alignment of original intent of the Con­sti­tu­tion with Biblical monetary and fiscal principles that deny human sovereignty over money and bank­ing, and the cautionary lessons from their neglect in American History
             what these Christian school texts might add:

No Government Sovereignty Over Money & Banking

—  in the Bible  —
  • Delib­er­ate currency de­base­ment/infla­tion ("deceitful weights") is wrong.
    (Lev. 19:35-36; Deut. 25:13-15; Prov. 11:1, 16:11, 20:10, 23; Amos 8:5-6; Mic. 6:10-11)  The root word for shekel means "to weigh." The term "weights" is a Biblical equivalent for "money."
   "… neither shall he [the king] greatly multiply to himself silver and gold."  (Deut. 17:17b)
  • What does the phrase "silver and gold" signify?
  • Israel's economy was on parallel standards (not bimetallism).  (Gen. 23:16, I Chron. 21:25, Jer. 32:9-10)  Everything had one price in silver and another in gold.  The market set the exchange rate.
  • Government could greatly multiply either silver or gold at any one time, but not both at once.
  • What does "to himself" mean here?
  • It distinguishes productive from unpro­duc­tive consumption.  It bars the simul­taneous great increase of both silver and gold in government hands (the unpro­ductive sector).  It does not ban the increase of silver and gold in private hands (the productive sector).
  • Where does it draw the line between "greatly" and "non-greatly"?
  • In loans backed by one's labor in case of default, one could borrow up to 6 years' wages between Sabbath years.  If government greatly increas­ed silver, it could not increase gold enough to devalue the gold shekel during that 6-year period lest it defraud creditors and oppress debtors (in inflation, cost of living rises faster than wages).
  • Thus, within this timeframe, govern­ment could hardly increase the supply of the non-greatly multiplied metal at all.  "Greatly" means "enough to affect the price level."
  • How could government greatly multiply to itself a precious metal?
  • By taxation, external tribute, or foreign plunder.
  • How would this rule affect the private sector?
  • Contracts would stipulate payment in the metal whose supply was more stable.
  • It would shield commerce, interest rates, insurance, pensions from risk due to government's propensity to inflate.
  • How would this rule affect the public sector?
  • It distinguishes tax rates from tax revenue. The more government taxed transactions in the greatly-multiplied metal, the more its revenue would fall as the private sector shifted to the other metal.
  • The more government spent its greatly-multiplied metal, the more its purchasing power would fall.
Economic behavior is not value-free.
The Bible is an economics textbook in Christian education.
—  in the Constitution  —
  • States cannot "emit bills of credit" (i.e., circulate unredeemable paper money). The Constitutional Convention rejected a bid to empower the federal government to emit bills of credit, and refused to authorize it to charter corporations (such as banks).
  • Congress can coin money and define the precious metal content of the monetary unit(s).  This allowed bimetallism, where gold and silver exchanged at a legally-set ratio.  From 1792 to 1873, bimetallism worked poorly.  The fixed legal ratio lagged behind the fluctuating market ratio, so the over­valued metal drove the undervalued metal out of circu­lation, putting the U.S. on a de facto gold or silver dollar standard. Biblical parallel standards and hard money would have provided more money without the instability, which became a pretext for federal control over money and banking.
            how these Christian school texts might improve:
• Note conformity to and violation of constitutional/Biblical principles in the blue and red passages below. •

History of U.S. Money & Banking

strict construction
A. McCulloch v. Maryland constitutionalized the federally chartered Bank of the U.S. and implied federal sover­eignty over money and banking.  Hamil­ton­ians/ Whigs/ Republicans favored this.  Jackson's abolition of the Bank, however, and the independent treasury system, ended federal involvement in money and banking until 1861.  There were hard money and soft money Jefferson­ians/ Jackson­ians.  In emergencies such as wartime, the Treasury borrowed money by issuing short-term, interest-paying pro­mis­sory notes in large denominations. F. From 1873 to 1933 the U.S. was on a fractional-reserve gold standard, backed by a readiness to sell bonds for gold in world markets if U.S. gold reserves to redeem the dollar fell below a $100 million mini­mum threshold.  Though inflationists tried in 1878 and 1890 to raise prices through "free silver," the U.S. remained on a de facto gold standard because the Treasury redeemed silver dollars and silver certi­fi­cates in gold.  The national financial Panic of 1893 occurred when U.S. gold reserves dipped below $100 million.
B. Banking in this era was not laissez-faire. To raise money, states sold state bank charters, which let a bank operate only in a certain territory, and forbad branch banking.  This "unit banking" rule hinder­ed asset-diversi­fication and risk-spreading, yet state banks supported it because it restricted com­petition.  Some states provided deposit insur­ance funds to prop up weak state banks, en­cour­aging state bank irrespon­si­bil­ity.  But where branch bank­ing exist­ed, or banks formed and monitored their own insurance associations, state banks did well. G. Congress taxed state bank paper money out of existence in 1865.  Under the National Banking System's "inelastic" money supply, long-term stock and bond returns were more stable and short-term interest rates more volatile.  The opposite occurred under the Federal Reserve System's (FRS) "elastic" money supply.  This was because interest rate regulation by the FRS put price controls on credit.  The market rate of interest (the price of money) is investors' guide to future demand.  Overriding it made investing riskier.
C. In free banks, organized under Jack­son­ian general-incorporation laws, states created a market for their debts.  Free banks had to buy state bonds, which they could use as collateral for issuing paper money redeemable on demand.  Free banks were stable where state finances were sound.  If state finances were shaky, state bond prices (and hence the value of free banks' assets) fell, causing "runs" and bank failures.  Private "clearing­houses" redeemed distant banks' notes – often at a discount – and helped restrain inflation. H. The FRS at once also undermined the gold standard.  During WWI, it cut reserve requirements.  From 1921-29, it increased the money supply by 62% while gold re­serves rose 15%.  It did this by expanding bank credit through below-market interest rates, and by buying federal bonds.  That began a boom-bust cycle, and let Euro­peans delay deflating or devaluing their currencies, which since 1914 were over­valued in gold relative to the dollar.  U.S. prices in the 1920s were stable.  Rising productivity conceal­ed monetary inflation.
loose construction
federal sovereignty
since 1933
D. Between 1862 and 1865, the North issued $400 million in "greenbacks" to help finance the Civil War.  This was the first unredeemable federal paper money, declared legal tender for all debts public and private.  In 1871 the Supreme Court consti­tu­tion­alized federal legal tender paper money in emer­gen­cies, and in 1884 in peacetime, as a sovereign right of govern­ment, except where contracts specified repay­ment in gold.  $346.7 million of these green­backs remain­ed in circulation, and became redeem­able in gold in 1879. I. In 1933-34, the federal government declared its owner­ship of all U.S. monetary gold, ordered citizens to surren­der it for paper money, outlawed acquiring it "except under license," and required those still holding it to swear in writing what they had and where it was.  Ameri­cans could no longer redeem dollars in gold.  Ending the domestic gold standard increas­ed federal power to tax through inflation.  Inflation shifts purchasing power to government, which spends first the new fiat money it creates, before the resulting price rise.
E. In the National Banking System (1863-1913), federally chartered "national banks" bought federal bonds and issued paper money against them.  That meant deflation in the Gilded Age, as federal surpluses retired old debt.  These banks accepted each other's "national bank notes" at face value.  This led to fewer bank runs, but more severe runs when they did occur, since the whole system would be suspect, as in the Panic of 1873.  Unit banking continued.  Strong banks formed private clearing-houses from which to borrow in times of need. J. The "gold exchange standard," adopted in international trade in the 1920s and again after WWII, undercut the classi­cal gold standard.  When they experienced trade deficits, "key currency" countries (for internal political reasons) inflated in order to hold prices up and interest rates down, instead of deflating to equalize the balance of pay­ments.  That exported inflation, inter­nation­alized unsound invest­ments, entailed chronic trade deficits, and in 1971 dissolved all gold constraints and fixed exchange rates in foreign trade.
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