Abraham purchasing the cave of Machpelah from Ephron by Phillip Medhurst. Courtesy of Wikimedia Commons.
Abraham weighed out the silver for Ephron which he had named in the hearing of the sons of Heth, four hundred shekels of silver, currency of the merchants.
- Genesis 23:16
In his lecture “Money, Freedom and the Bible,” John Robbins argued that the manufacturing of money was not a proper function of government, because there is no warrant for this in Scripture. The Bible charges the civil magistrate with the duty to punish evildoers and reward the good. There is no mention of anywhere in Scripture of God granting civil governments the right to manufacture money.
The first time I heard this many years ago, I was shocked by this idea. “But all governments manufacture money,” I thought to myself. “If the government didn’t supply money, who would?” I continued.
Of course, my initial objection can be answered by pointing out that simply because a thing is done does not logically imply that it ought to be done. In the 18th century, David Hume famously made this point.
Secondly, concerning who would supply money in the absence of governments, the answer to this is the market would take care of this. As Robbins noted in his lecture, there is such an example of this in Genesis 23, where Abraham pays for the field to bury Sarah by weighing 400 shekels of silver, “currency of the merchant.” Note that it was not the currency of Pharaoh, nor the currency of the King of the Hittites that Abraham weighed out. It was the currency of the merchants. That is to say, it was a unit of money that arose from the common practice of the free market. Importantly, it was not a government issued currency, neither was it the product of a government licensed central bank.
For that reason, that it arose in the marketplace and was privately managed by the merchants who used it, the shekel weighed out by Abraham was an honest unit of money. The same cannot be said for sovereign currencies of our day. Not only do they fail to maintain purchasing power, but they are deliberately designed to lose value over time. To this author’s knowledge, there is not one honest currency in use today, including, and perhaps especially, the U.S. Dollar.
Last week’s post titled “This is Going to Hurt, Part 1: Honestly Facing our National Bankruptcy,” discussed the disastrous economic numbers coming out as a result of the government’s response to the coronavirus pandemic. Please note, I did not write, “the disastrous economic numbers coming out as a result of the coronavirus pandemic,” but, “the disastrous economic numbers coming out as a result of the government’s response to the coronavirus pandemic.” It is not the Chinese coronavirus that caused over 30 million Americans to lose their jobs in the past six weeks, it is decision, more accurately decisions, of various government officials that have led to this disaster.
But oddly, as I also noted, the stock market has rebounded even as economic activity has made record declines. How can this be? The short answer to this question is money printing on a mind-blowing scale by the U.S. Federal Reserve, the central bank of the United States.
My purpose in this post is to lay out in non-technical language what a central bank is and what it does. In subsequent posts, I shall illustrate the unbiblical, immoral nature of central banking by looking in detail at the origin, the workings and the disastrous effects Federal Reserve (the Fed) policy has had on our nation.
What is a Central Bank?
When taking up any subject, whether it’s central banking or some other topic, it’s imperative to define one’s terms. As Gordon Clark and John Robbins both noted, if you don’t define your terms, you don’t know what you’re talking about.
With that in mind, before embarking on a discussion of central banking, it’s worth asking this question: What is a central bank?
For a good basic definition of a central bank, Investopedia is a good source. The Investopedia entry begins:
A central bank is a financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the central bank is usually responsible for the formulation of monetary policy and the regulation of member banks.
Central banks are inherently non-market-based or even anti-competitive institutions. Although some are nationalized, many central banks are not government agencies, and so are often touted as being politically independent. However, even if a central bank is not legally owned by the government, its privileges are established and protected by law.
The critical feature of a central bank—distinguishing it from other banks—is its legal monopoly status, which gives it the privilege to issue banknotes and cash. Private commercial banks are only permitted to issue demand liabilities, such as checking deposits.
There’s quite a bit there to unpack, and it is not my intention to cover everything in this short post. That said, I would like to draw your attention to the first sentence of the first paragraph. It reads, “A central bank is a financial institution given privileged control over the production and distribution of money for a nation or a group of nations.” And where does this control come from? The third paragraph explains thus, “The critical feature of a central bank – distinguishing it from other banks – is its legal monopoly status which gives it the privilege to issue banknotes and cash.
The monopoly power over, “the production and distribution of money and credit for a nation,” and the, “legal monopoly status which gives it [the central bank] the privilege to issue banknotes and cash,” is an awesome power. It gives central bankers the legal power to, quite literally, create money – author Mike Maloney calls what central banks issue currency, distinguishing it from money; we will discuss what he means by this distinction in a future post – out of nothing. This ability to create money from nothing is the defining superpower of all central banks and central bankers. Remove this power from the central banks and they would cease to be central banks.
Another point to make is that, as Investopedia tells us, “Central banks are inherently non-market based or even anti-competitive.” Now this statement alone should make anyone who believes in constitutional capitalism (constitutional capitalism is the term John Robbins used to describe the political and economic expression of Christianity; see Ecclesiastical Megalomania, Introduction, pp.14 and 24) more than a little suspicious of central banking. How is it possible for men who claim to value economic and political liberty to justify the existence of a central bank, which as Investopedia admits is an institution that is “inherently non-market-based or even anti-competitive”?
Many people are unaware that Karl Marx and Frederic Engels called for a central bank in their Communist Manifesto. In the 10 Planks of the Communist Manifesto, plan number 5 reads, “Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.” Again, we need to ask why it is that Western nations, which at least make the claim that they are republics of one sort of another, universally employ central banks which are by their very nature antithetical to the republican government?
Further, we note from Investopedia’s definition that many central banks are private, not government owned, institutions. The Fed, for example, is privately owned by the member banks. Now the basic definition of fascism is the merger of state and corporate powers. On this definition, we can say that the Fed – charted as it is by the federal government but privately owned by the member banks – is based on a fascist, rather than a communist model.
This cover from the April 2012 issue of The Atlantic featuring then Fed Chairman Ben Bernanke is how the establishment wants you to view central bankers. They are the heroes out to save the financial system. A more accurate description is that of the arsonist who first sets fire to your house, then rides up in a fire truck to douse the flames.
Closing Thoughts
With the short definition above, it is my hope that the reader now has a clearer picture in mind of what a central bank. While most of us are familiar with commercial banks, central banking remains a distant and mysterious thing. This is just the way government officials, central bankers and academic economists want it. The less ordinary people understand about central banking, they happier they are.
The defining characteristic of a central bank is its government granted monopoly control over the issuance of money and credit.
It is no overstatement to say that with such power, the decisions of those in charge of central banks affect the lives of every single man, woman and child in the nations over whose currencies they have control. Yet, as has been noted, the activities of central banks and central bankers are little understood by the general public. This is not by accident; it is by design.
By shrouding the process by which central banks create money (currency) in mystery, and by diverting the public’s attention away from the true source of the decline in purchasing power of their wages and their savings, central bankers largely have been able to escape blame for their nation destroying activities. Instead of being seen for the goats they are, central bankers are held forth as the heroes and saviors of the financial system.
Lord willing, in our next installment we shall take a deeper dive into the operations of the Fed, in particular, the process by which it creates money. If you don’t already know, you’ll likely be in for a big shock.
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