Decoding Mammon

Money as a Dangerous and Subversive Instrument

Dominy

• Publisher: Wipf and Stock
• Year: 2012
• eBook ISBN: 9781621894704
• Topic: Theology & Religion
• Subtopic: Religion

Decoding Mammon is an exposition of the negative assessment of money implied in Jesus' statement, You cannot serve God and Mammon. On the basis of the theology enshrined in the Old and New Testaments and in the long-term tradition of the church, it is claimed that problems associated with money do not arise simply from the way it is used, but from the nature of money itself. Despite the fact that money has enabled great economic development, and in contrast with the general consensus of governments, economists, and many theologians that money is either a positive or neutral instrument, the book seeks to show that money is a deeply flawed instrument, created by fallen human beings, and fashioned over the years to suit the interests of those in power rather than the needs of people in general. It is argued that money should only be allowed to operate within severe restrictions, and that any reformulation of the global economy as a result of the recent financial crisis needs to be based on this understanding.

Section One

The Nature of Money

Chapter One

What Is Money?

To discover whether money should be regarded as dangerous, we need first to consider what money actually is. When most people think about it, they imagine something simple and straightforward, easily identified and understood. The truth is, however, that money is extremely complex, and as we realize this, we shall be in a position to appreciate both the many problems it creates and the attitudes developed towards it in the Christian tradition.

One of the basic misunderstandings about money is to imagine it as a commodity like other commodities. It is now understood by scholars, however, that the idea of money (as a measure of value) was present in the world long before there was any commodity fulfilling that role.1 Even in the process of barter it could be said that those involved in the exchange were comparing their products with each other in accordance with some more abstract measure of their respective values. Even before barter exchanges, it can be argued that the idea was present long ago in gifts given to superiors (the size of the gift demonstrating the importance of the person in the community); in peace offerings to people who had been offended (for instance, blood money, offerings to gods, spirits, or ancestors; the size of the offering demonstrating the seriousness of the offence); and in bride money (whether bride-price or dowry). We also find powerful rulers taxing their subjects in different ways—and some of the earliest writing is actually elementary bookkeeping, on clay tablets, recording the amount of taxation paid.2

The first commodities functioning as money were of various kinds, especially grain and cattle (the wealth of Abraham and Job was measured by the number of cattle they possessed; Genesis 13:2; Job 1:3). One commodity that survived in some places until the mid-twentieth century (AD!) was the cowrie shell. Precious metals came into early use for this purpose, sometimes in the form of ingots or jewelry. The first coinage is traditionally attributed to Croesus, King of Lydia (a Greek kingdom in modern-day Turkey) in about 640–630 BC,3 and from that time onwards coinage became the dominant form of money. Its great advantage was that it combined a fixed amount of metal with a seal guaranteeing its authenticity.

One of the features of the so-called Dark Ages was that the system based on coinage virtually collapsed, though there remained a skeleton economy based on the Roman accounting system, where debts could be settled in a wide variety of commodities.4 In Britain the country reverted for about two hundred years to what seemed to be a completely moneyless economy until the people relearned how to mint and use coinage.5 The money used during that period has sometimes been described as “ghost money” (in existence, but not visible). The amount of coinage began to increase substantially in the tenth century, when there was an agricultural revolution based on developments in agricultural techniques (providing increasing surpluses for sale), a steady increase in population, the development of local markets, a gradual increase in international trade, and a modest development of cottage industries.6 This led in turn to developments in the area of banking.

In the first instance, bankers were moneychangers who changed money from one currency to another for the purposes of international trading. Then, around the year 1200, they started to take deposits of cash for safe keeping. With the cash deposited with them, these early bankers then made loans to other customers, on which they made various charges. After this came the settling of accounts by bank transfer or bill of exchange (rather than by large crates of cash). The real beginning of banking, however, came when loans started to be made by bank credit, which didn’t necessarily have to be linked to the cash that banks had deposited with them, provided that all depositors didn’t claim their money at the same time. Technically, this is known as fractional reserve banking. Its effect was to create new money “out of nothing.” Further changes came through the invention of the printing press, which enabled coins to be printed, and then bank notes—though the first notes were not printed till 1661 by the Bank of Sweden.7 More immediate in its effects was the far-flung trading of Spain and Portugal and the “voyages of discovery” which took Christopher Columbus to the “new world” in 1492 and Vasco da Gama to India in 1499, followed by many others in the ensuing years. This produced a flood of gold and silver into Europe—which, if properly invested, could have enabled great developments in the European economy. Much of it was spent, unfortunately, on inter-European wars, and the sudden increase in the amount of money in circulation simply led to a great increase in prices (inflation).8

The first important public bank (backed by a government or city council) was established in Amsterdam in 1609. This example was followed in Britain in 1694 with the establishment of the Bank of England, to which were given the dual responsibilities of “lender of last resort” (to other British banks) and of control over the issue of currency.9 This was a creation of tremendous importance to Britain, as it took control of the monetary system out of the hands of the crown and enabled the possibility of creating large sums in loans, backed by the state (which could always cover them by taxation). The loans of the bank were backed by its holdings of gold and silver. Immediately, however, loans were made (particularly to finance government military operations) where such backing was far less than the money lent out. Such lending was acceptable as long as the bank retained public trust, but there was obviously great potential for abuse. In 1844 the Bank Charter Act put a ceiling on note issues by the bank (and other banks). Designed to protect the value of the pound, this provided a degree of stability to the British money system for nearly one hundred years.10

The history of the capitalist system over the last two hundred years has been one long struggle to keep economies stable in a system that is essentially unstable. Probably the most effective tool has been the Gold Standard formally established by Britain in 1821 and held intact until 1914 and for shorter periods since. The chronic problem of inflation (with its attendant reduction in the value of money) has been tackled in many different ways, particularly by fiscal policy and monetary policy. In the Great Depression of the 1930s, when nothing else seemed to work, J. M. Keynes encouraged governments to create extra money in order to get their economies moving.

After the Second World War, the agreements made at the Bretton Woods conference were an attempt to put the global financial system back on a secure foundation. An initial hope had been that it might be possible set up an international central bank. This was thwarted, however, by the desire of the United States to maintain its economic supremacy—and the result was, instead, the creation of the International Monetary Fund (IMF), funded by contributions from member states, which would seek to maintain economic stability by loans to countries facing difficulties. A major tactic was to maintain fixed exchange rates between currencies in relation to the U.S. dollar (which itself was pinned to gold), the dollar being given in this way equal status with gold as a reserve currency.

Though this system served well for a time, U.S. holdings of gold (compared to dollars) fell steadily, until the United States could no longer hold to the agreed ratio and abandoned it in 1971. In the same way, the IMF was not able to hold to the agreed ratio between its deposits and its loans. To deal with this latter problem, a further reserve asset was created, called “Special Drawing Rights.” From 1975 it was recognized that the Deutschmark, the Yen, the Swiss Franc, Sterling, and the French Franc could also be treated as reserve currencies. All these assets have been used by the IMF to bail out currencies in difficulty, but with conditions attached that have often been too hard for a country to bear. Designed to enable countries to repay their debts to the IMF and other international creditors, these conditions have often prevented governments from developing their countries as they might wish, and they have exaggerated the imbalances that they were supposed to correct.

The World Bank, created at the same time as the IMF, was intended originally to make development loans for reconstruction following the Second World War, moving on after that to make loans to any developing country. Here also, however, the conditions attached to loans have often proved too burdensome. One of the great objections to both these institutions is the exaggerated influence of those countries providing most of their capital. A third creation of Bretton Woods was the General Agreement on Trade and Tariffs (known since 1995 as the World Trade Organization), which was formed to agree on common rules for tariffs and to reduce trade restrictions through a series of negotiating rounds. Although some progress has been made in this area, there remains, unfortunately, a reluctance on the part of some of the more powerful nations to abandon practices that are to their benefit.

Further attempts to produce stability have come in the regulations of the Bank for International Settlements (which preceded the IMF, and established an international gold clearing system, balancing credits and debits between countries, in order to minimize actual gold shipments). The first of these (known as Basel I, 1988) required central banks to hold capital equal to ten percent of their risk-weighted assets. Basel II (2004) was more flexible, establishing figures according to a number of relevant factors. Basel III (2010) (agreed to as a result of the recent financial crisis) has raised the required holdings to 9.5 percent in times of crisis. Another attempt to create stability has been the European Monetary Union. In order to enter the Union, member states had to achieve convergence at various levels—fiscal deficits, price stability, exchange rate stability, and interest rates.11 Continuing membership would require maintenance of these convergences, but the European Central Bank would give assistance in time of crisis. The introduction of the Euro has created a new phenomenon in the form of a currency shared by several countries. Meanwhile, the U.S. dollar has (for all intents and purposes) achieved the status previously held by gold, but remains under U.S. control.

Deregulation

Probably the most significant events of the recent past, however, have been the deregulation of many financial processes encouraged by neoliberal thinking. This thinking represents a revival of the laissez-faire economics given its classic exposition in the work of Adam Smith. Its best known modern expositors have been Friedrich Hayek12 and Milto...

Table of contents

• Title Page
• Foreword
• Acknowledgments
• Introduction
• Section 1: The Nature of Money
• Section 2: Lending and Borrowing
• Section 3: Evaluating Money
• Conclusion: Decoding Mammon
• Bibliography