Ethics Money Production
Notes
Preface
Introduction
The public institutions themselves, of peoples... ought to make all human society conform to the needs of the common good; that is, to the norm of social justice. If this is done, that most important division of social life, namely, economic activity, cannot fail likewise to return to right and sound order. (§110)
And the man who wrote the first draft of this encyclical emphasized that social justice was supposed to have an impact on economic institutions via the legal framework: “it shall bring about a legal social order that will result in the proper economic order.” Oswald von Nell-Breuning, Reorganization of Social Economy: The Social Encyclical Developed and Explained (Milwaukee: Bruce, 1936), p. 250. For an excellent discussion of social justice see Matthew Habiger, Papal Teaching on Private Property, 1891 to 1991 (Lanham, Md.: University Press of America, 1990), pp. 103–29.
The work was written to show that there is a problem, to show that the problem is chiefly one of creation of interest bearing debt which is permitted to be used as basis for money, to show the way in which this is permeated by the rights to a return on money lent. (Morals and Money , p. 160)
The great difference between scholastics and contemporary economics is one of scope and methodology: the Doctors approached economics from a legal point of view. They attached excessive importance to formalism, so that the study of economics nearly reduced itself to an investigation into the form and nature of contracts. (Ibid., p. 21)
At the end of the present work, the reader will be in a better position to judge the extent to which this approach is “excessive” or justifiable in the light of useful results.
1. Monies
2. Money Certificates
3. Money within the Market Process
4. Utilitarian Considerations on the Production of Money
A clear sign of this is that such alterations are a modern invention, as it was mentioned in the last chapter. For such a thing was never done in [Christian] cities or kingdoms formerly or now well governed. ...If the Italians or Romans did in the end make such alterations, as appears from bad ancient money sometimes to be found in the country, this was probably the reason why their noble empire came to nothing. It appears therefore that these changes are so bad that they are essentially impermissible.
Compare this astounding historical judgment to Ludwig von Mises’s “Observations on the Causes of the Decline of Ancient Civilization,” in Human Action (Auburn, Ala.: Ludwig von Mises Institute, 1998), pp. 761–63.
Notice that the authority of Ptolemy’s text for subsequent generations derived to a large extent from the fact that it was believed to be the work of Saint Thomas Aquinas. But according to the prevailing opinion in contemporary scholarship, Saint Thomas wrote only the first twenty chapters of this book; the rest (including the passage we cited above) was from the pen of Ptolemy. The chapters written by Saint Thomas have been republished in several modern editions under the title of the original manuscript: On Kingship, To the King of Cyprus. See in particular the 1949 edition from the Pontifical Institute of Mediaeval Studies in Toronto, which contains a very useful introduction.
5. General Considerations on Inflation
6. Private Inflation: Counterfeiting Money Certificates
Do not act dishonestly in using measures of length or weight or capacity. ...You shall have a true scale and true weights, an honest ephah and an honest hin. I, the LORD, am your God, who brought you out of the land of Egypt. (Leviticus 19: 35–36)
You shall not keep two differing weights in your bag, one large and the other small; nor shall you keep two different measures in your house, one large and the other small. But use a true and just weight, and a true and just measure, that you may have a long life on the land which the LORD, your God, is giving you. Everyone who is dishonest in any of these matters is an abomination to the LORD, your God. (Deuteronomy XXV: 13–16)
Varying weights, varying measures, are both an abomination to the LORD. [...] Varying weights are an abomination to the LORD, and false scales are not good. (Proverbs 20: 10, 23)
7. Enters the State: Fiat Inflation through Legal Privileges
8. Legalized Falsifications
9. Legal Monopolies
In close connection with the right to private property, Pope Leo XIII’s Encyclical also affirms other rights as inalienable and proper to the human person. Prominent among these, because of the space which the Pope devotes to it and the importance which he attaches to it, is the “natural human right” to form private associations. This means above all the right to establish professional associations of employers and workers, or of workers alone. Here we find the reason for the Church’s defence and approval of the establishment of what are commonly called trade unions: certainly not because of ideological prejudices or in order to surrender to a class mentality, but because the right of association is a natural right of the human being, which therefore precedes his or her incorporation into political society. Indeed, the formation of unions “cannot... be prohibited by the State,” because “the State is bound to protect natural rights, not to destroy them; and if it forbids its citizens to form associations, it contradicts the very principle of its own existence.”
As Leo XIII had pointed out, this right is so primordial that it may only be qualified in the case of associations that are “evidently bad, unlawful, or dangerous to the State.” (Leo XIII, Rerum Novarum, §52.) But the State has no right whatever to prevent or dissolve any legitimate association. It follows that there is no moral basis, at any rate from a Catholic point of view, to prevent or dissolve associations of persons who wish to produce and use a specific kind of money.
10. Legal-Tender Laws
... the prince could thus draw to himself almost all the money of the community and unduly impoverish his subjects. And as some chronic sicknesses are more dangerous than others because they are less perceptible, so such an exaction is the more dangerous the less obvious it is, because its oppression is less quickly felt by the people than it would be in any other form of contribution. And yet no tallage can be heavier, more general or more severe. (Oresme, “Treatise,” p. 32)
11. Legalized Suspensions of Payments
12. Paper Money
Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing 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. (Ben Bernanke, “Deflation: Making Sure ‘It’ Doesn’t Happen Here” [Remarks before the National Economists Club, Washington, D.C., 21 November 2002])
