Lux Lucet

One Hundred Trillion dollars. Sound like a fortune, doesn’t it? King Solomon sort of money, no doubt. Well, maybe not so fast. You see, depending on whose dollar you’re talking about, it could be a king’s ransom or it may amount to less than the change in your pocket. Take for instance the Zimbabwe bank note pictured here. I have one just like it on my desk as I write, a 2008 Reserve Bank of Zimbabwe 100 Trillion Dollar bill. I got mine on Amazon for $1.74 plus shipping.

Zimbabwe, you see, experienced a phenomenon known as hyperinflation, which is where a nations currency – whether it’s called a dollar, a drachma or a peso – becomes worthless. The principle reason why inflation, and in extreme cases hyperinflation, occurs is this: : the government creates too much money. Money is not some magical, mystical item. If it has value, it does so for the same reason that all other things have value. It’s not valuable because it’s festooned with pictures of dead politicians, or its ornate engravings, or is signed by the Secretary of the Treasury, or tradition. Money, all money, is valuable because people impute value to it.

Two of the most basic laws of economics are the laws of supply and demand. The greater the supply of a given item, the lower its price tends to be. The greater the demand for that same item, the higher its price tends to be. When the supply of money rises faster than the public’s demand for it, the “price” of that money tends to go down relative to things people purchase and, therefore, it takes more money to buy the same amount of goods and services compared to when the “price” of the money was higher. This is really what is happening when we talk about a dollar not going as far as it used to. But generally we don’t talk about the “price” of money going down. We usually say that the cost of a gallon of gas or milk or a Big Mac at McDonald’s has gone up. But when we talk this way, it tends to take our focus off the root of the problem. Instead of talking about increasing prices, what we really should be discussing is the decreasing value of our money. Price inflation at the gas pump, the supermarket or your favorite fast food restaurant is the necessary effect of the destruction of the value of your money.

And that destruction is not random. It is not by accident. The value of your money is not being destroyed because of a bad wheat crop in Kansas, or a frost in the orange groves of Florida. Your dollars do not by less because of greedy oil speculators, covetous middle men, or lack of adequate government regulation. The purchasing power of your money – be it denominated in dollars, yen, euros or yuan – is going down because of one thing: the issuing government wants it that way.

There can be several reasons why a government may want to trash the value of its currency. Perhaps, like the US federal government, it has promised too much money to too many people and created an enormous debt that it can never pay off…at least honestly. By printing more and more money, the value of that debt goes down along with the value of the currency. It’s a sort of get-out-of-jail-free card for financially irresponsible governments.

Another common reason is to encourage imports and discourage exports. Mercantilism was a popular idea back in the 17th and 18th centuries and it has never really gone away. In mercantilism, exports are always good and imports always bad. If a nation lowers the value of its currency relative the value of countries, the exporting business of that nation can sell their goods on foreign markets are relatively lower prices than they could otherwise, thus gaining a competitive advantage. Sometimes this is referred to as a “beggar thy neighbor” strategy, because it allows firms in one county essentially to steal business those in the export market.

A third reason for money printing is to protect the interests of well heeled, politically connected individuals at the expense of their countrymen. The collapse of investment bank Bear Sterns in 2008 sent shock waves through the world financial system culminating in the financial crisis that occurred in the fall of that year. Were it not for the creation of enormous amounts of money by the US Federal Reserve System, many other major financial institutions would have failed. Some consider the action of the Federal Reserve heroic, supposing that the actions of Ben Bernanke saved the day for the US economy. “Look at those green shoots,” they’d say. But those with a Biblical understanding of money and government take a slightly different view. They consider2008 bailouts theft and a perfect example of the sort of arrogant behavior the prophet Samuel warned about when he admonished the Israelites for demanding a king. Among the many evils Samuel predicted (see I Sam. 8) was that the king (i.e. big government of the sort we have today) would take their property and give it to his friends. In other words, the king and his buddies would practice crony capitalism. The same sort of arrangement that obtains today in the US between Washington and Wall Street.

Money is too important a thing to be left in the hands of the politicians. The Biblical function of government is to punish evildoers and praise the good. The Bible says nothing about governments having the power to manufacture money. That they do so is a matter of convention, not the product of sound thinking. Some may suppose that the what happened to the value of the Zimbabwe dollar could never happen in the US. They would be wrong. Any government issued fiat currency can to zero. In fact, from a historical standpoint it is even likely the dollar will go to zero at some point. Ultimately, the solution to the problem of the destruction of the value of our money is not a better government currency – i.e. a government enforced gold standard – but to get the government out of the money manufacturing business entirely. Money, like gasoline, mild and Big Macs, should be supplied by the free market.