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The Moral Dimensions of Monetary Policy

Before the turn of this century, an entire generation of preachers and ministers concluded that a moral monetary policy was an easy-money policy. “Give the people more money and credit,” was the cry of the populist ministers. “Down with gold, up with silver.” They mistakenly believed that the Treasury's printing press was the key to earthly salvation.

Even as late as the 1940s, this ideology is evident in film. As much as I love the Christmas classic, It's a Wonderful Life, a careful viewer can detect its social credit homiletics. Even today, no matter which party holds the White House, the Federal Reserve consistently faces pressure to keep interest rates artificially low, buy more governmental debt, and trade quick economic fixes for long-term capital accumulation.

Yet, it seems to me, honesty and morality weigh in on the side of the grand tradition of sound and stable money. Holy Scripture speaks of money in terms of weight, just as it was spoken of throughout history. In the list of commandments, tampering with those weights ranked among the behaviors condemned from above. Certainly, if it is wrong for individuals to deceitfully change the weights and measures in their transactions, it is also morally incumbent upon other institutions, especially government, to keep honest weights and measures.

Allow me to provide a few examples. God told the Israelites that economic transactions should take place with honest weights. Leviticus 19:35—37 instructs, “You shall do no wrong in judgment, in measure of weight, or capacity. You shall have just balances and just weights.” This was long before the followers of Keynes revealed to us the dangerous “liquidity trap” that might result from such “outdated” morals. Again, Proverbs 11:1 announces, “A deceitful balance is an abomination before the Lord: but a just weight is his will.” But, of course, this was before we discovered the mysterious “magic” of debt monetization. Proverbs 20:10 says, “Diverse weights and diverse measures, both are abominable before God.” Would that Solomon had known about the trade off between inflation and employment, as revealed by the Phillips curve, now back in vogue. It is true that Isaiah (1:22) warned that “faithless princes” can turn silver “into dross.” But that was before we knew how much debtors can gain from paying back dollars that are cheaper than those they borrowed. I will grant that the prophets Amos (8:5) and Micah (6:10) condemned deceitful balances when selling wares. But neither knew much of the balance of trade with Japan.

Actually, all these scriptural references make an important moral and economic point. The long history of inflation reveals the tragic consequences of excessive money creation. It can, literally, turn a society upside down. It did in Germany, in the famous hyperinflationary period of 1921—23. It did in this country in the late 1970s. It has in innumerable developing countries. Control of the printing presses is probably a first-order condition to a solid economy and stable social order. So much for the magic of credit expansion.