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Economics for Everybody, Part 1

An Interview with R.C. Sproul Jr.

What if it were possible to stop inflation with the push of a button? Sound crazy? Drs. R.C. Sproul and R.C. Sproul Jr. discuss our current economic crisis.

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Further Study On This Topic

  1. devotional

    Money and Inflation

  2. blog-post

    What's the Most Important Economic Lesson Americans Need to Learn?

  3. blog-post

    Biblical Economics

Money and Inflation

In most economies today, nothing tangible like gold or silver supports the currency. Instead, we have “fiat money,” so-titled because the government declares that paper currency is legal tender, even though, as mere paper, bills themselves have no intrinsic value. It is money only because the government says so. As long as people are confident the government will not go under, paper can be traded for valued items, even though paper itself is common and lacks much worth.

American economists debate whether it was wise to abandon the gold and silver standard, but it is inarguable that fiat money increases the likelihood of inflation. We can look at what inflation does with the following example. Suppose a town’s economy is worth one hundred dollars and the price of everything is set against this standard. At no time is there more than one hundred total dollars in circulation.

A man in this town owes the bank ten dollars, but he cannot repay the loan, and so he makes a counterfeit ten dollar bill to repay the bank with the fake money. He has just increased the money supply by ten dollars. However, over time, people begin to notice that there are more dollars in circulation than previously thought. Money is now less valuable because it is less scarce, and merchants increase prices to make a living. The increase in the money supply partly leads to inflation.

Inflation strongly impacts the poor and the elderly. Older people usually live on fixed incomes, and their purchasing power goes down as the money supply goes up because their currency loses value. Similarly, the poor lose what little purchasing power they already had.

The need to pay the obligations of the federal government is what usually drives inflation. Faced with deficits, the government can cut programs, raise taxes, or print more money. Since the first two of these options are not popular and the third is more clandestine, governments often choose to print extra money. As today’s passage teaches, Scripture forbids unjust and arbitrary weights and measures, and therefore it condemns artificial increases in the money supply. We should do all we can to encourage fiscal discipline in the government to protect the vulnerable from inflation. 

What's the Most Important Economic Lesson Americans Need to Learn?

R.C. Sproul Jr.

There are any number of appropriate ways to answer this question. I have for years now affirmed that the most foundational economic truth is that God owns everything. We need to learn that, down to our toes. I have also affirmed that the first law of economics is that consuming more than we produce leads to poverty, consuming less than we produce leads to prosperity. Grasping these truths would go rather a long way in fixing what ails us, economically speaking.

Having barely survived another election season, however, and mourning the end of Twinkies, I'm tempted instead to start with this lesson- governments cannot create any wealth, though they can and usually do destroy wealth. On both sides of the aisle we had voters demanding and candidates promising more jobs, better health care, rising home values. Government, however, is a parasitic institution rather than a productive one. That is, the government doesn't actually produce anything. Everything that it has it first must take from someone else. If it "invests" in infrastructure, it does so with money taken from others who would invest where there was market demand. Federal loans (or guarantees which amount to the same thing) to green companies happen because people investing their own money don't think it a wise investment. Turns out people were right, the government wrong, again. The key point, however, is that they had to take money from you and me first.

Please remember this when the left complains of corporate greed supplanting human need. What these folks mean is, "I know better what to do with the wealth of stockholders than they know. I should have control over the wealth of others." Every dollar directed by the state is a dollar that once belonged to someone else, who would make market decisions, rather than political ones.

Which brings us to the other side of the coin. The state cannot create wealth, but they certainly can destroy it. The notion that businesses can just pass tax burdens on to consumers is patently false. Suppose for a moment that Michelle Obama successfully lobbies for a Twinkie Tax of $10 a Twinkie. How many Twinkies will Hostess be able to sell? Demand for a given product or service goes down when prices go up, even if prices go up because of an increased tax burden. Lowering demand is generally bad for business.

Governments also destroy wealth by inflating the money supply. This is a tax on savings. My $1 can buy a loaf of bread in an economy with x paper dollars. Double the number of paper dollars to 2x and dollars to donuts my dollar will now buy only half a loaf. The government, without taxing me, without breaking into the bank, has stolen half a loaf of bread from me. Inflation isn't businesses being greedy, but governments being devious and destructive.

Finally governments can destroy wealth by regulating businesses. Requiring companies to provide health insurance to its employees, or pay them a wage above some arbitrary standard may seem like a good idea. Until we realize that wages are actually determined by supply and demand. If it costs me $10 an hour, because of government mandates, to hire someone for a job that I value at $9 an hour simply means no one gets hired to do the job. Multiply that principle across the board at a given business and it will go out of business.

God gave the state the power of the sword, to punish evildoers. That's what they are to do. When they step outside their calling hardship comes, every time. Economies create wealth. Governments punish evildoers.

What's the Most Important Economic Lesson Americans Need to Learn? was originally published at

Biblical Economics

R.C. Sproul Jr.

My husband read Biblical Economics and learned much. What is your opinion about giving back our rental/investment property to the bank as a foreclosure?

Not long ago I received another interesting question related to our current economic hardships. A friend wondered if investing in Iraqi currency in anticipation of a steep devaluing of that currency was legitimate. I explained an important but often overlooked element of economics (which also touches on oil speculation and even ticket scalping)--the economic value of sharing risk. If I buy Iraqi denari at x and turn around and sell then at 10x I have not profited illegitimately but have shared in risk that provides genuine economic benefit to the whole Iraqi economy. (Of course I cannot cry if I sell x for a loss either.)

What has that to do with foreclosures? Possibly everything. First let’s cover the easy part. If you agreed, in taking a loan, to pay back that loan, you have an obligation to pay back that loan, whatever might have happened to the value of what you bought with the borrowed money. In this kind of situation that loaning institution is not sharing in the risk. They are simply supplying capitol and you are serving as the risk taker.

But suppose that the language of the loan agreement says something like this--you may either pay back the loan, or you may give the collateral/home back to the lending institution, and lose whatever money you might have put down. In this instance the bank is sharing in the risk of your investment. There is no shame in turning over the keys.

Where it gets fuzzy is when this relationship is not made clear. Consider, for an odd analogy, the game of basketball. Suppose you are a conscientious Christian who desires at all times to abide by the rules. Suppose your team is down just a few points in the waning seconds. The odds say your best bet is to put one of your opponents on the foul line. Do you foul him? Is the foul simply a trade for free-throws, or are the free-throws a punishment for wrong-doing? If the former, certainly you are free to foul. If the latter, even if it costs you the game, you are duty bound not to foul. You cannot do wrong (foul) that good (winning the game) may come.

In these difficult times it is all too tempting to take advantage of systems designed outside a Christian perspective. Bankruptcy is one example. Trading in the keys on an upside down house may be another. At the end of the day, however, the Christian is called, in good times and bad, to let his yay be yay and his nay be nay. If I promised to pay, I pay, even to my own hurt. It is fair, however, to consider what I actually agreed to do. I know many Christians are frustrated in their attempts to talk over their agreements with banks, which won’t begin that process until the Christian first begins to not pay on the loan. Here I would argue we keep our vows to our hurt. We don’t miss payments in order to start a conversation on a short sale or a foreclosure. If they won’t renegotiate as long as we pay, we keep paying.

These matters, in short, are not terribly complicated. We do what we promised to do, and everything will be okay. We need to have faith to believe God sees and honors our integrity.

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