The Beginnings of Christian Reform (20)

The Reform of Banking


You shall not steal… You shall not covet… (Ex.20:15, 17).

These commandments prohibiting theft and covetousness makes it abundantly clear: the Bible is the document of free-market capitalism, not government intervention.

Behold, the days are coming,” declares the Lord, “when I will raise up for David a righteous Branch; and He will reign as king and act wisely and do justice and righteousness in the land (Jer.23:5).

A Christian concern for justice and righteousness within the banking system is an aspect of the furtherance of the kingdom of God and the Lordship of Jesus Christ. Christians must see this as both legitimate and necessary. “Justice and righteousness in the land,” is not some nebulous, abstract concept; it clearly involves finance and banking.

How do we know this? Because the Bible tells us that “A just balance and scales belong to the Lord; all the weights of the bag are His concern” (Prov.16:11). The Bible has much to say about gold and silver, and about borrowing, lending and interest rates, all of which are aspects of a free-market economy. For Christians to think they have no need to consider the legitimacy of banking practices indicates that there are aspects of life not subject to the law of God and the Lordship of Christ. But “all the weights of the bag…,” means just that.

A. Banks and Government:                                                                               The manipulative control of banking by government is a hang-over from Marxism. Marx wanted total control of banking by government; a central bank. Ask anyone today do they believe in Marxism, and they would probably say “Of course not.” Little do we know just how much we’re still affected by Marxist dogma in the West.

People sometimes say, “It’s nice to have friends in high places.” Indeed it is. But if having friends in high places means that an individual or group has unwarranted influence, this commonly leads to overt or covert corruption. God’s law is the only guarantee for justice within any community, and legislators must ensure that they are subject to the law of God.

It is always potentially dangerous when an interested group or industry in a community is consistently very close to those making legislation; they may develop an unwholesome level of influence, to the detriment of justice. This can be any group: a particular religious denomination, or unionists or environmentalists, or lobbyists for the poor, or a group of employers, or doctors; any influential group in the community. Many groups hope that they can extract a special deal from the government in their favour, but this invariably means the supplanting of righteousness.

Historically, banks have tended to seek some form of special relationship with governments. The more corrupt the government, the more likely that some form of “special relationship,” a “sweetheart deal” will eventuate. Corrupt governments convince themselves that this will be beneficial for them, and they ignore the fact that justice has been corrupted within the community.

These “special relationships” between banks and governments can be overtly or covertly constructed. Banks like a semblance of formality wherever possible: it gives them the protection of legality, and thus security. Thus they generally seek some kind of formal structure that grants this relationship a measure of both legality and legitimacy in the community.

This seems like a “win-win” situation for banks and government; just what both parties want. But it is corrupt. They may be the winners, but the losers are the members of the community, whose money is likely to be siphoned off through taxation to prop up the banks if they fall on hard times. The “sweet-heart deal” for banks and governments, is a poisoned chalice for the other 99.5% of the community.

Almost every nation in the world has some form of Reserve Bank. They represent a “special relationship” between government with banks; a cartel. They frequently permit banks to benefit from national economic manipulation, but with legality, and thus legitimacy. Thus a subtle (or not so subtle) form of corruption and nepotism develops. In the United States, 

the Federal Reserve system virtually controls the nation’s monetary system, yet it is accountable to no one. It has no budget, it is subject to no audit, and no Congressional committee knows of, or can truly supervise its operations (Murray Rothbard).

The Chairman of the Federal Reserve is appointed by the U.S. President, so the Chairman knows who will be renewing his contract in the future. Would he really want to make a decision displeasing his boss, who also seeks re-election? The Chairman is an unelected banker/bureaucrat, but he has more economic power than the President, and his decisions have great impact not just on his nation, but on others as well.

The United States claims to be the “land of the free and home of the brave,” but the reality is far different. Its banking system has not been free, since the nation’s biggest bankers conspired with politicians to structure the Federal Reserve in 1913, which someone called “The Hideous Creature from Jekyll Island.”[1]  It’s a cartel arrangement that benefits banks. The bankers effectively said to the nation’s political leaders, “We’ll look after you, if you’ll look after us.”

This is effectively a fascist system, where banks and government collude to get the results that suit them both, to the detriment of justice and the community. Thus (as others have suggested), the bankers on Wall St can be pocketing vast bonuses, while Main St U.S.A. is going bust.

This corrupt relationship between the US government and the banking system was famously exemplified in the “too big to fail” scandal of 2008, when US banks which had lent monies in a cavalier and irresponsible way to thousands of people with poor credit histories, were able to persuade the Congress to bail them out, using taxpayer’s money. Taxpayers were forced to save these incompetent and irresponsible institutions, with no negative consequences.

In October 2009, Sheila Bair, at that time the Chairperson of the FDIC, commented:

‘Too big to fail’ has become worse. It’s become explicit when it was implicit before. It creates competitive disparities between large and small institutions, because everybody knows small institutions can fail. So it’s more expensive for them to raise capital and secure funding. Research has shown that banking organizations are willing to pay an added premium for mergers that will put them over the asset sizes that are commonly viewed as the thresholds for being too big to fail.

Since 1913, the U.S. Federal Reserve has inflated the U.S. money supply so much, that the dollar has lost 96% of its value. An item costing 4c in 1913, now (in 2011) is worth $1.00. And this is “good for the economy?”

How does this happen? Reserve banks are able to manipulate the money supply, by printing money. What individuals cannot legally do without being charged with counterfeiting, Reserve Banks do regularly. A loose monetary policy with low interest rates means there is plenty of money around in the economy to be lent and spent. This generally creates demand and therefore jobs, and pushes up prices. This is “helping the economy,” if you are a banker, but leads to the “boom-bust” scenario which the western world has known now for a hundred years.

How does this happen? When inflation is getting “too high,” even for bankers, the Fed will tighten monetary policy by raising interest rates. Borrowers say, “I won’t borrow at those rates.” Business demand drops off, prices fall, and unemployment rises.

Inflation is commonly seen as an increase in the prices of commodities, but this is really a result of inflation. A true definition of inflation is an increase in the money supply. “There is one cause, and only one cause, of depressions: prior inflations.”[2] The elite manipulate, and call it “good policy.”

It is significant that in the period from the Napoleonic wars to the First World War, when the gold-standard was used internationally, prices remained substantially the same. Yes, governments printed money as a form of currency, but only in relation to the amount of gold they possessed. With the coming of the First Word War, governments threw caution and sound money policies to the wind in their haste to get, spend and borrow money. As Ron Paul explained,

It is no coincidence that the century of total war coincided with the century of central banking. When governments had to fund their own wars without a paper money machine to rely upon, they economized on resources. They found diplomatic solutions to prevent war, and after they started a war they ended it as soon as possible. [3]

The final connection between the U.S. dollar and gold, was dissolved in 1971, by President Nixon. From then on, it has had no backing of any kind. It floats on a sea of nothingness.

What about the gold in Fort Knox? How do we know how much there is, or even if there is any there at all? There has not been an audit of the gold there since 1953, and that was only a supervised, partial one. The Federal Reserve has consistently resisted an audit of this gold, which poses the question, “Does the Fed have something to hide?” Odd things can happen to extremely valuable and easily transportable commodities, when no one’s checking.[4]

When men reject God, they must choose something (or somebody) in His place. As North explains,

Ethically rebellious men refuse to live under the dominion of randomness. Yet they also refuse to live with the idea of a sovereign personal God. Therefore, they have adopted the only intellectual alternative: dominion by elite planners… Most men want to live in a universe with meaning and purpose, but this requires the concept of predestination… it is never a question of predestination or no predestination. It is always a question of whose predestination.[5]

Ron Paul was right. “Nothing good can come from the Federal Reserve,” he wrote in “End the Fed.”  He wrote, “I’ts immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty.”[6]

The only long-term solutions in terms of promoting banking liberty, are to dissolve all Reserve Banks and the government’s 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.[7]

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. For every dollar lent, the bank in order to always be soluble, should have a dollar deposited.

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 a run could take place, 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.[8] 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.[9]

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. Won’t that be good?

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, but in moral terms this is no different to giving a stimulant to a racehorse, before a race. It is an artificial benefit, suiting banks and government, but then liable to be of harm to the community, as it introduces a distortion to the economy, and puts more vulnerable people into debt. It may help governments politically, because “stimulus packages” are well received by an ignorant and foolhardy populace, who only view the immediate results. But when governments purport to be economic messiahs, it always ends with pain and 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.[10]

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. Actually, 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).[11]


National banking systems are certainly in need of reform, but governments are not responsible to manage the economy, and “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 the debate on financial reform, 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.[12]

[1] The U.S. Federal Reserve was set up as a result of a secret meeting between bankers and politicians at Jekyll Island off New York, just before Christmas in 1910.

[2] Gary North, “Honest Money,” 1986, p.85.

[3] Ron Paul, “End the Fed,” 2008, p.63.

[4] Gold is worth A$58,000/kg in January, 2019.

[5] Gary North, “The Dominion Covenant,” 1987, p.22, 23.

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

[7] Gary North, “Inheritance and Dominion,” 1999, ch.6.

[8] “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 Rousas Rushdoony, “Institutes of Biblical Law,” 1973, Appendices, p.804.

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

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

[11] Gary North, “Honest Money,” 1986, p.124.

[12] ibid., p.137.