The Great Christian Revolution Part2

Ron Paul was right. “Nothing good can come from the Federal Reserve,” he wrote in “End the Fed.”  He wrote, “it’s immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.” [1]

The only long-term solutions in terms of promoting banking liberty, are to dissolve all Reserve Banks and the government printing and control of money, let all interest rates be set by competition within the market-place, and let communities everywhere use as money those commodities they wish to. Historically (ie, since Genesis), these have generally been silver and gold.

Money has been defined as the most marketable commodity. It has the widest market of all commodities. Wherever men go, there are other men who want to exchange more specialized goods and services for money, the less specialized good. Money is the most liquid asset. This means that it can be exchanged for other valuable assets rapidly without advertising costs and with no discount.[2]

2. Banks make money by lending their depositors’ money; that’s their business. The more they can lend to borrowers, the more interest they can gather and the more profit they can make for their share-holders.

But people also come to the bank daily to withdraw money. They say to their bank, “I want it back now.” Normally, this isn’t a problem for banks. It only becomes a problem if an unusually large proportion of the bank’s depositors come in a short period, wanting money that wasn’t loaned long-term.  This is called a bank run.

The prospect of bank runs creates a dilemma for every bank. “How much of our depositors’ money can we afford to lend?” Logic tells us that no bank should be able to lend too much of its short-term deposits, so that the depositors’ investments are always protected in the event of a bank run.

This is where life can get interesting. Banks can be covetous. They may say to themselves, “We’ve got all this cash just sitting in our vaults, earning us nothing. Let’s lend it to some more borrowers and put it to work.  We know there’s a risk of a run, but…” So, they put pressure on bank regulators and governments to reduce the proportion of depositor’s monies that the banks must maintain, to 20 or even 10%.

If they are successful with such pressure, let’s examine a likely scenario:                                                       a lending process starts with Bank A, and Depositor A’s $1,000,000.  The bank leaves $100,000 in its vault, and lends Borrower X $900,000. Borrower X has a great scheme which really impresses his bank, so it only requires that he deposit $90,000 of the $900,000, and he goes off and spends $810,000, which he pays to a bank account. Borrower Y also has a great scheme that really impresses his bank, so they lend him 90% of the $810,000, and he goes off to pay for his scheme with a cheque for $729,000. He deposits his cheque, and just then Borrower Z comes in with a really great plan needing a bank loan. The bank is impressed, and lends him 90% of the $729,000, requiring that 10% is deposited, leaving him with $656,000.

What has been happening? From the original $1,000,000 deposit in a bank, $2,366,000 has actually been lent through the banking system. The money supply has massively increased.

Fractional reserve banking is inherently fraudulent.[3] It inflates the money supply. It creates the boom-bust cycle. Through central banking, it transfers planning authority to bureaucrats with only an indirect stake in the outcome of their decisions.

It is the basis of the modern economy. The booms and busts get worse. The dollar depreciates. Central planning increases. Information becomes more distorted. This will end badly. Worse, it may start over again.[4]

3. There is something else banks can do. They can engage in a form of manipulation, or subtle blackmail. They can say to governments, “look, if we can lend more money, that will help the economy, create jobs and get things moving. That should help you people get re-elected, right?

How about we make a deal? If you guys in government will provide depositors with a government guarantee to protect their deposits if there is a bank run, we’ll lend a higher proportion of our depositors’ funds.”

Many foolish governments will go along with this, because they think it will “help the economy,” and help them politically. It will certainly stimulate the economy by making more money available to borrowers. It may also help them politically, because “stimulus packages” are well received by an ignorant and foolhardy populace. But when governments purport to be economic messiahs, it always ends with tragedy. Jesus Christ is the Messiah; governments are not.

The Bible tells us that “…righteousness and justice are the foundation of His throne” (Ps.97:2). This process of governments providing a “guarantee” actually destabilises the economy, because the lending institution has passed the responsibility for its lending practices over to the taxpayer.

This means that the concept and practice of a free-market banking system has thus been exchanged for a fascist one. The taxpayer not the bank, is now responsible for the solvency of the banking system, through a “government guarantee.” When responsibility has been transferred to the taxpayer, it means that banks are able to lend more and lend irresponsibly, and the taxpayer (not the bank) will be accountable for its mistakes. This is not righteousness; this is evil.

The Bible says, “woe to those who enact evil statutes and to those who constantly record unjust decisions, so as to deprive the needy of justice and rob the poor of  My people of their rights, so that widows may be their spoil and that they may plunder the orphans” (Isa.10:1-2).

B. The Way to Reform:

Historically, there have been five necessary prerequisites for any money to gain widespread acceptance. Money needs to be scarce, durable, divisible (into fractional units), transportable (and hence easily transferred), and easily recognised. From our earliest records gold and silver have fulfilled these requirements and served well as money.[5]

There are a great number of changes that need to take place, if the banking systems of the world are to be reformed along Biblical lines. Frankly, the entire civilisation of the world needs to be reformed from bottom to top, including banking. What is needed to begin with, is a widespread change in heart and attitude among individuals, so that there is a rejection of what we have understood to be the status quo, and a return to God’s way of doing things. Revolutionary activity in the traditional sense of violently overthrowing governments or institutions, would achieve nothing. We will need a process of progressive change, in accordance with God’s law.

The fundamental principles of Bible monetary theory are simple enough:

1. Standard weights and measures, with penalties imposed by the civil government against those who tamper with the scales.

2. A prohibition on all forms of multiple indebtedness by banks, meaning fractional reserve banking.

3. Competitive entry into the silversmith, goldsmith, or any other smith business.

4. No one is to be compelled by law to accept any form of money. (This is not stated in the Bible, but it follows from the first three principles that are based on voluntarism.)  This means no legal tender laws (compulsory acceptance).[6]

The banking system is certainly in need of reform. But “reform” means different things to different people. Christians must do all that is in their power to add the leaven of a Biblical contribution to reform debate, to ensure than reforms are enacted along free-market, Biblical lines. This alone will help bring about true liberty in the banking realm.

We have little hope of reconstructing the monetary order strictly or primarily through political reform. Until we can begin to shrink the State as a matter of policy, with the support of the vast majority of the State’s present corrupted beneficiaries, we will not see a Bible-based monetary reform.[7]


[1] Ron Paul is a U.S. Republican senator. He wrote “End the Fed” in 2008.

[2] North, G., “Inheritance and Dominion,” 1999, ch.6.

[3] “Fractional reserve banking is prohibited, since it is a special manifestation of multiple indebtedness-more debts outstanding than resources to meet those obligations on demand if all are presented simultaneously. Multiple indebtedness is prohibited by Ex.22:25 ff: the cloak taken as collateral by a lender cannot therefore be used by the borrower to obtain loans from other people.” Gary North, in Rushdoony, R., “Institutes of Biblical Law,” 1973, Appendices, p.804.

[4] North, G., “What is Money?” Lew Rockwell’s website, 10/10/2009.

[5] Rushdoony, M., ‘Money, Wealth and Power,’ in “Faith for all of Life,” March/April 2010, p.5.

[6] North, G., “Honest Money,” 1986, p.124.

[7] ibid., p.137.

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