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A Bushel Of Wheat For A Penny

The following article was originally published by Koinonia House in mid to late 2010.  I thought it a very well written explanation of where we have come from, and where we have arrived at in our current finacial condition as a country and as a world. 

The question is,"Where Are We Going?"  I dont't know that.....I only know that it doesn't look very promising at the moment. 

The only thing I can be sure of is that God is in control.....and He knows exactly where we will end up.


 Commodity Money and Fiat Money:

A Bushel of Wheat for a Penny           by Steve Elwart


This is Part 1 of a three-part series on money: where it comes from, how governments use it to control our lives, and how modern money policy makes the prophecies in the Book of Revelation seem very close to fulfillment.

Everyone reading this article is being robbed. We all use paper money and every day, governments are lowering its value. That value is being stolen from us. To understand how this is happening, we need to get to the basics of money. What is it?

Commodity Money

We learn in Genesis that Abram (renamed later by God to Abraham) was a rich man. How do we know? We are told that “he had sheep, and oxen, and he asses, and menservants, and maidservants, and she asses, and camels.1 In Biblical times, these things were all media of exchange. No king decided this; he didn’t call in his magi to decide what the medium of ex-change would be. Ordinary people, or “the market” made the decision. Let’s say a king did decree that rocks could be used as money. Would anyone use them? Probably not, because they would not know the value of those rocks. Unless you are building a lot of things (or stoning a lot of adulterers), rocks fail to meet a standard for money: they have no intrinsic value.

If a civilization was to advance though, it had to come up with a convenient way to save and exchange value to buy things. Leather was used in ancient Rome. (Contrary to popular belief, Roman soldiers were not paid in salt. The term salary [from the Latin salārium] was money given to Roman soldiers to buy salt.2) Animal pelts, whiskey, and tobacco leaves were used in the former British Colonies, wampum (strings of beads) was used by the American Indians, dried fish were used in the Canadian maritime colonies, maize or corn was used in Mexico, and salt, iron and farming tools were used in Africa. These things are called “commodity money.” As civilizations became more complex, most forms of commodity money be-came very cumbersome. (Who would want to give or get 300 sheep to buy a car?) Another medium of exchange had to be found.

Over the centuries, the answer came to be the precious metals, gold and silver. These two metals became the basis for money in most of the world. Gold and silver were used as money for very specific reasons and they were chosen by “the market.” People decided that these two metals had all the qualities that made for a good medium of exchange:

• They were easily portable. They had high value to weight ratios. (So if you want to buy a car, you only have to bring 16 ounces of gold rather than 300 sheep.)

• They are fungible. Every ounce is like every other ounce no matter where they were mined. People didn’t have to worry about the quality of the pure metal.

• They are highly divisible. They can be divided into very small parts or coins. The term “pieces of eight” came from the practice of taking a Spanish dollar, a real de a ocho and breaking it up into eight pieces or reales to make change. Diamonds fail the test of being divisible because if you break up a gem-quality diamond, it loses its value. (For that matter, sheep aren’t easily divisible either unless you are very hungry.)

• They are highly durable; the thirty pieces of silver paid to Judas are still in existence today.

• They are naturally scarce. They can’t be multiplied.

Fiat Money

There is another type of money besides commodity money, called fiat money. (Fiat from the Latin fiat, meaning “let it be done.”) This is an item, usually paper or low value metal coins, that is decreed to have value by a government.

A government puts fiat money into circulation first by connecting it to a gold or silver standard, but then cuts the link and says that gold and paper are no longer convertible, making the piece of paper “legal tender for all debts public and private.” It is obvious that debtors would be very happy if the pa-per money lost its value because they could pay their debts with inflated currency. In a letter to Edward Carrington in 1788, Thomas Jefferson wrote, “Paper is poverty … it is only the ghost of money, and not money itself.” Jefferson died bankrupt because of the early United States money (monetary) pol-icy based on paper.

It is not that fiat currency is a new invention. Fiat currency actually made its appearance over 1,000 years ago. China was the first country to issue true paper money around the 10th century A.D. Although the notes were valued at a certain ex-change rate for gold, silver, or silk, conversion was never allowed in practice. The bills were supposed to be redeemed after three years in circulation, but as more bills were printed with the older notes being refused redemption, inflation became evident. Government measures to prop up the currency were unsuccessful and it fell out of favor.3

In Europe, fiat money came into being around the 12th century. Villagers would store their gold and other valuables in their lord’s castle for safekeeping. But during this time of the Crusades and other European Wars, noblemen were always strapped for cash. When times were particularly bad, the noblemen would confiscate the villagers’ gold and silver and issue notes for it, to be redeemed later. Needless to say, the notes weren’t always honored or if they were redeemed, the holder of the note received less of their gold back than what they were promised. This is an early case of price inflation.

Today, fiat money will always bring on inflation for two reasons: 1) Politicians like to induce inflation because it gives the people the illusion of prosperity and 2) its declared value is much higher than the cost of producing it. Whether it is a $1 or $100 bill in fiat money, it costs only 4 cents to produce. In today’s electronic age, the production cost for new money is zero since money creation is just a keystroke and an entry in cyber-space. On the other hand, in history, if you had a $20 gold piece, the cost of that gold piece, less the cost to produce it, was about $20.

The Gold Standard

If the relative value of gold is tracked over the years, one can see how fiat money loses its value over time.

By the 1400s, most countries that had complex trading systems were using gold and silver for transactions. Prices held relatively steady through the early 20th century, except for lo-cal shortages and wars. In the United States the price of gold and the things it bought held its value with exceptions for war-time when the government printed paper money to cover its war debts. After the emergencies and the country went back on the gold standard, prices went back to about where they were. During the First World War, most countries involved in the war suspended the gold standard so they could print enough money to pay for their involvement in the war. After the war, these countries went back to a modified form of the gold standard, but abandoned it during the “Great Depression.”

In 1941, most countries adopted the Bretton Woods system, which set the exchange value for all currencies in terms of gold. Countries that signed the Bretton Woods agreement were obligated to convert their currencies held by foreign countries into gold valued at $35 per ounce. However, many countries just pegged their currency to the U.S. dollar, thus making it the de facto world currency.

In the 1960s the United States had done something unprecedented in its history. The country fought two wars at once. The United States fought a war halfway around the world in Vietnam and a second war at home, the “War on Poverty.” To do this, the United States started to borrow massively and brought on double digit inflation. To curb the inflation, the United States government started to deflate the dollar. 1963 marked the entrance of the new Federal Reserve notes and the disappearance of the $1 silver certificate. This marked the point that no longer did the U.S. Government have to pay in “lawful money.” Finally, in late 1973, the U.S. government decoupled the value of the dollar from gold altogether and the price shot up to $120 per ounce in the free market.4 Since the United States went off the Gold Standard, a dollar is worth only one-sixth of what it was in 1973. (At this writing, gold is priced at $1,220 per ounce.5)

Inflation Always Follows Fiat Money

The history of price inflation in the United States is repeated in every country that uses paper money. Keep in mind, rising prices are not always bad. If a good becomes scarce, its price will go up and may provide the motivation to introduce a new, better product for the market. The reason petroleum became so popular so quickly was because of the rising cost of whale oil. If governments propped up the price of whale oil to keep whalers and whale oil processors employed, it would have taken decades for the world to embrace petroleum as a substitute. And someday, petroleum will go the way of whale oil as long as market forces dictate the transition.

When a government inflates its currency, it increases prices by reducing the purchasing power of the money. The short-term effects though, can seem to be positive. Like a drug addict, inflated money gives the illusion of prosperity, making people feel good. But like the addict, withdrawal follows the high.

At first, the surge of more money makes people feel good be-cause they can pay off their debts with cheaper money and they seem to have more disposable income. As prices catch up, people then find it more expensive to live. In addition, their tax burden goes up, since many government taxes are progressive in nature, meaning the percentage tax increases as in-come or asset values (houses, cars, etc.) increase. Eventually the market will try to correct itself and a depression will follow.

At this point, people start to feel the pinch of their money buying less. They demand that their government do some-thing. Since studies have shown that voters only have a memory of one year when it comes to politics, politicians will make sure that the economy is good in an election year.6 They will artificially stimulate the economy to give voters the illusion that times are good again and reelect the incumbents. This lasts only so long and inflation, with its problems kick in again. This cycle of increasing the currency supply and price inflation ultimately ends with the collapse of the currency, sometimes preceded by hyperinflation. (Hyperinflation and its cultural effects will be covered in Part 3 of this series.) Surprisingly, the country has not learned its lesson and the devalued fiat currency is replaced with yet another fiat currency. Greece is a perfect example of this cycle.

The Greek drachma was minted in gold and silver in ancient Greece and made its reappearance as a fiat currency in 1841. Since then, the value of the drachma decreased. During the German-Italian occupation of the country from 1941-1944, hyperinflation ravaged the country, ending with the issuance of 100,000,000,000 (100 billion)-drachma notes in 1944. After Greece was liberated from Germany, old drachmae were ex-changed for new ones at the rate of 50,000,000,000 to 1. Only paper money was issued, again a fiat currency. Greece then went on a program of deficit spending for social programs and inflation started once again.

In 1953, in an effort to halt inflation, Greece joined the Bretton Woods system and the drachma was revalued at a rate of 1000 old drachma to one new drachma. In 1973 the Bretton Woods System was abolished; over the next 25 years the official exchange rate gradually declined, from 30 drachmas to one U.S. dollar to a ratio of 400:1. On January 1, 2002, the Greek drachma was officially replaced as the circulating currency by the Euro (again a fiat currency).7

Today, Greece is once again is in trouble. After years of continued deficit spending and the government’s easy monetary policy, Greece’s financial situation was badly exposed when the global economic downturn struck. Very quickly, the government’s “creative accounting” practices were exposed. The national debt, put at €300 billion ($413.6 billion), is bigger than the country’s entire economy, with some estimates placing it at 120 percent of gross domestic product in 2010. The country’s deficit—how much more it spends than it takes in—is 12.7 percent.

This time though, Greece just can’t inflate their way out of the problem. Now that they are on the Euro (in the “Euro-zone”), they have little control over their monetary policy. All their loans are in Euros and they must pay back the loans in Euros. One way to balance the national books is to implement harsh and unpopular spending cuts. Another way is to default on their debt. This would seriously damage the Euro as other countries look at default as a way out of their financial problems. (In fact, financial experts are predicting the demise of the Euro in as early as five years.8) A third way out is to separate itself from the Euro, go back on the drachma (fiat currency again) and then set an exchange rate of the drachma to the Euro at an artificially high number. The cycle of fiat money would then begin again.

As long as a country is on a fiat currency, inflation is sure to follow. Using a fiat currency could well reduce a civilization to work an entire day for a “bushel of wheat.”

In Part 2 of this series we will look at central banking and how the banks can change a society.


1.     Genesis 12:16b (KJV).

2.     “The American Heritage Dictionary of the English Language, 4th edition”. Answers.com. Retrieved 2010

3.     Ramsden, Dave (2004). “A Very Short History of Chinese Paper Money.” James J. Puplava Financial Sense.

4.     History of the Gold Standard: http://useconomy.about.com/od/monetarypolicy/p/gold_history.htm

5.     Monex Precious Metals: http://www.monex.com/monex/controller?pageid=prices.

6.     “Voters Respond to Economic Woes” Economics and Public Policy: http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1668.

7.     Greek Drachma, Wikipedia:  http://en.wikipedia.org/wiki/Greek_drachma#First_modern_drachma.

8.         “Euro ‘will be dead in five years’”: http://www.telegraphic.com.uk/finance/financetopics/budget/7806065?Euro-will-be-dead-in-five-years.html




A Bushel of Wheat for a Penny: Part 2

The Rise of the Central Banks


Last month we covered the two basic types of money: commodity money and fiat money. Commodity money, such as gold and silver, are based on something tangible and has intrinsic value. Fiat money, such as paper money, is based on whatever a government says it is worth. Commodity money keeps its value for years and is stable. Fiat money loses value from the time it is printed and eventually becomes worthless.

Though not as long-lived as commodity money, fiat money nevertheless has a long history as well. As mentioned in Part 1 of this series, villagers used to keep their gold and other valuables in the lord’s castle for safekeeping. Periodically, when the lord was short of cash, he would “borrow” the village’s gold and give them an IOU or “script” in return. This paper money could be returned at a later time, frequently for less gold than was taken from them.

To avoid this problem, villagers started to give their gold to the local goldsmith and get a receipt in return. These receipts were then used as money to buy and sell other things. These gold notes could ultimately be redeemed minus a small handling fee. However, goldsmiths soon learned that not all the gold would be redeemed at the same time and started to make up receipts for non-existent gold that he could use to purchase other items. This was the start of what is called “fractional banking.”

It was the Knights Templar that ran the best known medieval central banking system.1 The Knights ran an innovative system that utilized the first form of bank checks. Pilgrims going to the Holy Land were always in danger of being robbed on their way to Jerusalem. To make themselves less of a tar-get, pilgrims would deposit their money with the Knights at the start of their journey. They would then be given a coded piece of paper that only the Knights Templar could decode. When they reached their destination, they would turn in their “check” and be given the value of the check, minus a handling fee. The Knights Templar developed a network throughout Europe and the Middle East and soon became the wealthiest group in the Western World. Eventually, their wealth became an attractive target to the Pope and kings indebted to them. The Knights were arrested, their property confiscated and the Order was disbanded. The Order may have disappeared, but the financial system they left behind survives to this day.


After the Knights Templar, there were other organizations that functioned

  as banks, but in 1609 the Bank of Amsterdam was formed as the first central

  bank. Later, the Bank of Sweden was formed (1664), followed by the Bank

  of England (1694), with both institutions still operating today. While most   

  central banks are associated with fiat money, these three banks and the  

  other central banks formed through the early twentieth century operated on the gold standard. Since they were on the gold standard, the currencies were stable and inflation was kept under control.


 In the United States, early banking was carried on by the individual colonies and operated on the gold standard, but the economic pressures brought on by the Revolutionary War caused the colonies to start printing paper money to cover the costs of the war. The Continental Congress also started printing paper money, known as Continental Currency, to cover its costs. Both the state and continental currencies depreciated rapidly, becoming practically worthless by the end of the war. The term “Not worth a Continental,” meaning something of little of no value, came from this period.

In 1790, at the end of the Revolutionary War, Alexander Hamilton was the Secretary of the Treasury and Thomas Jefferson was Secretary of State. Hamilton wanted a strong central government bank; Jefferson was opposed to it. At the same time, Jefferson wanted the nation’s capital to be on the banks of the Potomac River in Virginia, which Hamilton op-posed. So, a deal was struck. In return for Hamilton’s support in moving the capital from New York to the new District of Columbia (Washington, DC), Jefferson would not oppose the new federal government assuming the war debts of the former colonies and the founding of a central bank. Thus, the First National Bank of the United States was formed.

This bank didn’t last long. The charter for the bank was allowed to lapse and was later followed by the Second National Bank of the United States. This was the bank that President Andrew Jackson successfully shut down. President Jackson thought that a central bank had no right to create money out of thin air. In his veto message, Jackson wrote,

“Congress [has] established a mint to coin money and passed laws to regulate the value thereof. The money so coined, with its value    so regulated, and such foreign coins as Congress may adopt are the only currency known to the Constitution.”2

It was the Panic of 1907 that served as the reason to create the third central bank, called The Federal Reserve in 1913. (This bank is neither a “federal” institution, nor a “reserve” for gold.)

Other central banks soon followed: Australia established its first central bank in 1920, Colombia in 1923, Mexico and Chile in 1925 and Canada and New Zea-land in the aftermath of their Great Depression in 1934.3 Printing money wasn’t restricted to just countries. One barrio on the outskirts of Caracas, Venezuela has created a “popular bank” and is going to issue a “communal currency”; currency printed on “little pieces of cardboard.”4

The Federal Reserve began a course of inflationary policies by printing paper money that was not backed by gold but nonetheless promised to be redeemed for gold. In 1933, during the administration of Franklin Delano Roosevelt, it became illegal for U.S. citizens to own more than $100 in gold coins or bullion ($1,660 in today’s dollars), thus making the dollar bills irredeemable for gold in the United States, but not for overseas investors.5

On August 15, 1971, President Richard Nixon officially took the U.S. off the gold standard.6 From then on, U.S. currency has been backed by the “full faith and credit of the United States Government.” This didn’t seem to be a problem for the bankers and lenders of the world. The U.S. dollar was the de facto currency standard for the world. All major transactions done around the world was based on the dollar. “Sound as a dollar” was used as a popular expression for something of quality.

What happens though when people have little faith in a currency and the country has no credit? The United States is about to find out. The United States has run a budget deficit every year, except for a four-year period during the Clinton and G.W. Bush administrations, since 1968.7 The total federal debt this year will exceed the total gross domestic product of the entire country.8 Over 18% of all government payments will go to interest on the debt.9

The states of California, Illinois, Michigan, and New York are all close to defaulting on their obligations and are looking to the federal government to bail them out. The price of gold is at an all-time high and people continue to buy gold no matter how much it costs. Moody’s Investor Service has warned that if the situation doesn’t change, the United States will lose it AAA credit rating.10 The “faith and credit” of the United States is shaky at best.

Normally, when a country expands its money supply, it will offer bonds to other countries. The lending countries will buy the bonds and then the borrowing country will use that money to issue paper currency to the lending banks at a set interest rate. The problem many countries have now is that lending countries are not buying. This puts the borrowing country in a bind. Since slowing the rate of increase of the money supply will invite a recession (a way for the economy to readjust itself back to reality), politicians will want to “boost” the economy by increasing the money supply. With no one buying a country’s debts, the debtor country is reduced to printing money that is backed by nothing. This is called “monetizing the debt.”

Ben Bernanke, the chairman of the United State’s central bank, the Federal Reserve, has been accused of gearing up the printing presses. Of course, in these days of electronic funds transfers (EFT), a printing press isn’t even required. A simple computer entry into a balance sheet will suffice.

In the last two years, the United States has put $2.5 trillion into the world’s economy.11 Continuing to expand the money supply in such a manner could cause a hyperinflation only seen in recent history in developing nations and post-World War II Germany. (We will visit the topic of hyperinflation and its effects on society in the third and final section of this series.)

Monetizing the debt does have a short-term advantage in the opinion of those who favor manipulating the money supply to regulate an economy, the so-called “Keynesians”12; you can set an interest rate to be whatever you want it to be.

When the Federal Reserve lends money to the member banks, the lending interest rate is at least equal the borrowing rate, plus additional percentage points to account for inflation and profit. If you monetize the debt, you don’t even have to charge interest.

That is where the United States is now. The Federal Re-serve is lending money to banks at 0% interest. Some economists ask, “What does that even mean”? Lending money at 0% interest in an economy with an inflation rate of 2.3% means the borrowing banks are actually being paid to take the money. Some economists feel that this is the best way to “stimulate” the economy. Others feel this is a terrible idea.

The “housing bubble” that the United States experienced over the last few years is an example of what happens when the money supply is increased. While the problem in housing started in the late 1970s with the Community Reinvestment Act in the Carter Administration,13 the problem went into overdrive in the last few years. When housing prices in major metropolitan areas began to “soften” (read that “return to a realistic level”), the Federal Reserve increased the money sup-ply by lowering the interest it was charging for its money. This in turn lowered the interest rate offered to home owners, often to people who could not afford to buy the homes. These people were told that they could actually afford these homes, by “creative financing.”

People were offered short term (3-5 year) loans with low interest rates and payments not even covering the monthly interest. The thinking was that when these loans came due, the equity in their homes would increase enough that they would be able to get another mortgage and catch up on their payments, because the increased value of their home would help pay down the original loan balance.

Others used their homes as a personal piggy bank, taking out second mortgages to buy consumer goods such as a second home, a car, a boat or to pay off credit card debt. This frenzy in the housing market would not have occurred had the monthly payments bore some semblance to reality. Once the housing market was saturated, home prices became stagnant and then began to fall as demand began to fall. Home owners found themselves in “upside-down” mortgages where they owed more money on the house than it was worth.

Many people then did what they thought was the only rational thing—they walked away from their mortgages. Mortgage holders (usually investment funds used for retirement savings, etc.) quickly found out that the AAA bonds they held, backed by home mortgages, were nothing more than junk bonds. The monetary policy of the central bank, put in place for political purposes, was a house of cards that started to collapse.

That house is still collapsing today. The credit collapse in the United States caused a ripple effect around the world. We are seeing the effects in Europe with the bailout of Greece (and possibly Portugal, Italy and Spain), the austerity programs in Britain and Ireland, and the calls from China, Russia, and others to move away from the U.S. dollar as the world’s re-serve currency. This last event could have devastating consequences.

The politicians in Washington, of both parties, don’t seem to realize just how serious the problem is as they are continuing to spend money they don’t have. They are continuing to say the only cure for an economy sick from borrowing too much money is to borrow more. This was the same thinking that brought disastrous consequences to Germany in the 1920s and ultimately to the entire world.

In the third and final part of this series, hyperinflation and its effects on a culture will be investigated.


1.     Sanello, Frank (2003). The Knights Templars: God’s Warriors, the Devil’s Bankers. Taylor Trade Publishing. pp. 207–208. 

2.     “President Jackson’s Veto Message Regarding the Bank of the United States; July 10, 1832,” http://avalon.law.yale.edu/19th_century/ajveto01.asp.

3.     http://en.wikipedia.org/wiki/Central_bank.

4.     Venezuela slum takes socialism beyond Chavez, http://www.alertnet.org/thenews/newsdesk/N04171136.htm.

5.     Executive Order 6102, http://www.presidencey.ucsb.edu/ws/index.php?pid=14611.

6.     It is an interesting sidenote that a country cannot be a part of the IMF (International Monetary Fund) if its currency is on the gold standard.

7.     http://www.coneofsilence.info/img/blogs/deficit(7-11-07).gif.

8.     http://shadowstats.com/article/issue-number-50-overview.

9.     GAO Audit Report 2007-2008 Schedules of Public Debt.

10.   Moody’s Says U.S. Debt Could Test Triple-A Rating, http://www.nytimes.com/2010/03/16/business/global/16rating.html.

11.   http://www.marketskeptics.com/2009/03/fed-is-planning-15-fold-increase-in-us.html.

12.   Keynesian economics was purposed by 20th century British economist John Maynard Keynes (1883 – 1946).

13.   Avery, Robert B.; Raphael W. Bostic, Glenn B. Canner (November 2000). Lending.” Economic Commentary. Federal Reserve Bank of Cleveland. Retrieved 2010-07-05.




A Bushel of Wheat for a Penny: Part 3

Hyperinflation and its Effect on Cultures


In part one of this series, we covered the difference between fiat and commodity money. As countries moved toward a fiat currency, the money supply increased and started to lose value. Part two of the series explored the rise of the central banks. It covered how central banks came into being and how they contributed to the destruction of a nation’s currency by creating a false business boom, then the final economic collapse.

This article, the third and last of the series, will cover the endgame of an irresponsible fiscal policy, hyperinflation. Economist Ludwig von Mises warned us in 1912:

The [business] boom produces impoverishment. But still more disastrous are its moral ravages. It makes people despondent and dispirited. The more optimistic they were under the illusory prosperity of the boom, the greater is their despair and their feeling of frustration. The individual is always ready to ascribe his good luck to his own efficiency and to take it as a well-deserved reward for his talent, application, and probity. But reverses of fortune he always charges to other people, and most of all to the absurdity of social and political institutions. He does not blame the authorities for having fostered the boom. He reviles them for the inevitable collapse. In the opinion of the public, more inflation and more credit expansion are the only remedy against the evils which inflation and credit expansion have brought about.1

Mises is warning us about the same thing that the Holy Spirit through Paul cautions of in the Book of Romans. In Romans, Paul writes of the importance of a man’s faith, rather than his works. When man takes the center of his being away from God, he tends to attribute his success to his own efforts and his failures to others.


So, what happens to a society when the ravages of hyperinflation start to consume an economy? What happens when the money dies?

Hyperinflation in a country is more common than we think. Israel went through a period of inflation in the 1970s and ’80s.2 Prices in Israel went from a 13% increase in 1971 to 445% in 1984. People would hoard phone tokens since their value would not change as prices rose. At the time, there was a joke going around that it was better to take a taxi from Tel Aviv to Jerusalem rather than a bus because you could pay the cab fare at the end of the trip when the shekel was worth less.

A major contributor to inflation was the government expanding the money supply. The Israeli government tried to automatically raise wages as the inflation rate went up. This move was meant to keep the people from feeling the effects of inflation, since their incomes rose with their expenses, but indexing just added to an inflationary spiral. As the chart above shows, while Israeli inflation was bad, other countries have experienced much, much worse.

Money has several characteristics. Its value is stable, it has a high value per unit (meaning you should not have to bring wheelbarrows full of money to the store to buy things), and it is durable; it lasts over time. You try to acquire it because you know it will be useful in the future.

That brings us back to the question, what happens in a society where this is no longer true? A society that does not have a strong faith in God has the lives of their citizens turned up-side-down. A person without God in their life will call their entire value system into question. The facts represented in the chart, however, demonstrate that in the last century, many societies fell into the trap of inflating their currency.

From previous experience, these societies should have learned that inflation is folly, yet they kept doing it. The reason is that inflation is not just an end in itself; it serves ideological goals as well. Goals like expanding the State, favoring debtors over creditors, and funding wars. Governments actually favor inflation and the social upheaval it causes.

Ben Bernanke, the Chairman of the United States Federal Reserve, said in a speech, “…the U.S. government has a technology, called a printing press, that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By in-creasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. 3

At first the effects of inflation are masked to us. Sometimes you have to think about it. For example, oil prices went up because of the inflation of the benchmark U.S. dollar. As a result, airlines’ fuel costs went up. The airlines started to charge more to passengers. Not only did they increase the ticket price, but they also started charging for bags. Now airlines call maintenance delays “Acts of God” so they don’t have to pay for overnight stays at hotels. A delayed plane will keep their passengers on the plane for hours, rather than go back to the gate and pay an additional fee.

Post World War I Germany (known as the Weimer Republic) serves as an example of what happens to a country that is going through hyperinflation.

Germany used inflation to pay reparations, abolish their national debt and build up the regime. Just as today, the effects of this monetary policy were not obvious at first.

In 1918, the inflation rate in Germany ranged from 1% to 6%, lower than many other countries in Europe. By 1923, the Deutschmark had fallen to 1/1,000,000,000,000 (one-trillionth) of its value from the previous five years. Bank policy had not changed too much, but the German people began to lose faith in their money and began to act differently.

It was like a forest fire that raged out of control. The entire society went into upheaval because the money died.4

At the time, no one really understood that it was the Central Bank that was causing the problem. Foreign exchange problems were blamed as well as other things like the weather (as is being blamed in Zimbabwe now), but above all, speculators. Speculators were at the top of the list of evildoers. The Central Bank was seen as the main problem only in retrospect.

After the hyperinflation started in Germany, the National Socialist Party (Nazis) took power. There was a connection between the two. Bernd Widdig, the author of the book Culture and Inflation in Weimar Germany, had an interesting theory. He said that money helps shape our values and what we do. When the money dies, what do you turn do?

The argument of the National Socialists was: “Your money has failed you, the speculators and the money lenders (as they described the Jews) have failed you. You can’t depend on capitalism anymore. You need something else, something that is going to last. That is Germany. That is what lasts, not money, not capitalism. You need order, order rooted in blood.” The German people accepted what the Nazis said only because the money had failed. When the money fails a society starts to fall apart and people will accept ideas they never would have accepted before.

There are other effects from inflation as well.

It fosters the expansion of government – In the early 1960s, cautioning that federal spending had a way of getting out of control, United States Senator Everett Dirksen observed, “A billion here and a billion there, and pretty soon you’re talking real money.”5

Today, that statement is almost laughable. In the first year of the Obama administration, over $1 trillion dollars (one thousand billion) was added to the United States national debt. This set a new record in spending, surpassing the previous record set by the George W. Bush administration. Politicians soon forget that the rights of the government come from the governed, not the other way around. One U.S. representative is quoted as saying in a town hall meeting, “The federal government can do most anything in this country.” 6

It gives politicians an “unrestrained vision” – Going hand in hand with the expansion of government is its “unrestrained vision.” Recent administrations thought they could conduct two wars and then have free healthcare for everybody. Politicians want to promote that an education for everyone is a “right.” They want to give each child born a $5,000 trust. They say everyone deserves their own home, and at least one car along with a myriad of other things. When you have the printing presses running 24 hours a day, 7 days a week, every-thing is possible.

It crushes charitable institutions – In the 1930s, in preinflation Vienna, there were huge non-profit agencies with money to care for widows, orphans and the poor. Organizations that would rival charities today. These organizations were all wiped out in the inflation. These were the institutions that stood between the people and the Welfare State. The uncertainty of hyperinflation provides a ready excuse for people not to support charitable institutions and they will fall into decline.

It turns people against capitalism – This is a dangerous aspect. Just as in Weimar Germany, people blamed the “greedy fat cats” for the nation’s woes. In today’s Greece there is a pent-up resentment towards corporate executives. They blame “the bosses” for Greece’s economic troubles rather than the rampant government spending. In the United States, even though the present tax code will hit taxpayers at all levels, it is being purported as only affecting “the rich,” those with annual incomes over $250,000. The rationale is that after a while, “you have made enough money.”7 The administrations of several western countries are turning towards socialism even as socialist countries (i.e. Russia & China) are lecturing them on excessive government spending and control.

It teaches people to live in the present – When the value of money starts to rapidly decrease in value, people tend to live more “in the moment.” There is no incentive to save and to anticipate, since it doesn’t pay to deny yourself now for some benefit later. Eventually, those that practice “old time” values of saving and investing are seen as fools and losers since any-thing you have today won’t be worth as much tomorrow. These effects are especially strong among the youth. They learn to live in the present and scorn those who try to teach them “old-fashioned morality and thrift.” Inflation thereby encourages a mentality of immediate gratification that is plainly at odds with Biblical principles of stewardship.8

It subsidizes debt and addiction to credit – When the value of money decreases over time, it doesn’t make sense to people to save money for everything. If you are going to “live in the present,” it seems reasonable to buy on credit and pay the debt back with cheaper money. People become addicted to credit. People will max out their credit cards even as the banks tighten down on credit. Today, there is actually an organization called Debtors Anonymous, to help people with credit addition. Debtor-support groups have sprung up around the country to help combat the problem.

The result is a rampant materialism – As people have to dwell more on money and finances because of inflation, society becomes more materialistic. More and more people will trade their spiritual well being and family relationships for more money to make ends meet. People will work longer than they planned because their savings have been wiped out. They may have to take a job far away from their home and family. This inflation-induced geographical mobility weakens family bonds and loyalty to their country. People who take their eyes off God and turn them toward the things of this earth fall prey to sin.9 The biggest danger here lies in people’s focus turning away from the things of God towards the things of man.

The Book of Ecclesiastes provides wise council about money. “He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.”

While we need to be good stewards of the material goods the Lord provides us, being too concerned about the things of this world can lead to a cancer in the soul as James said.10 Throughout these uncertain times, we need to be mindful of the things of God, rather than the things of this world. If we keep Christ in the center of our lives, we will keep our time here on earth in perspective and better weather the coming financial storm.


1.    The Moral Ravages of Inflation, http://blog.mises.org/8289/the-moral-ravages-of-inflation/.
2.    Senor, Dan and Saul Singer. Start-up Nation: The Story of Israel’s Eco-nomic Miracle. New York: Putnam, 2009.
3.    Remarks by Governor Ben S. Bernanke, Before the National Economists Club, Washington, D.C., November 21, 2002, www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm.
4.    Hyperinflation: Money to Burn, http://millennium-notes.blogspot.com/2009/08/hyperinflation-money-to-burn.html.
5.    www.senate.gov/artandhistory/history/minute/Senator_Everett_Mckinley_Dirksen_Dies.htm.
6.    Excerpt from Congressman Pete Stark’s Town Hall Meeting 7/24/2010, Hayward, CA, www.breitbart.tv/congressman-at-town-hall-the-federal-government-can-do-most-anything-in-this-country/.
7.    Obama: You’ve Made Enough Money, www.youtube.com/watch?v=k0JkyZx1LdQ.
8.    The Cultural & Spiritual Legacy of Fiat Inflation, http://mises.org/daily/1570#_ftn3.
9.    Ibid.
10.    James 5:3.




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