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College Class Material for Aug. 2nd

July 25, 2009

1) -on my blog here under the sermons tabs, you should be able to find an outline of my “Economics’ Sermon…”…use the search engine on the upper right of the blog page, type in “economics’ and select the one titled “sermon on biblical economics’…
3)—   – This is a presentation by the Von Mises Institute on Economics. Their principles of economics are sound and correspond with a biblical worldview of economics. —This should be the last one you look at. It is optional, and it is hour long video!
28 Aug 2003 by Tom Rose
Ultimately, the problem of inflation must be seen from a theological as well as an economic perspective. Civil governments are inflationists because they deny the sovereignty of God; they do not think the world can progress without their guiding hand, so they attempt to remake the world according to their own humanistic ideas. They use monetary inflation as a means of arrogating money and the control of wealth to themselves. In fairness to civil rulers, it must be said that they are responding to the wishes of a people who are anxious to be relieved of their burdensome responsibilities. A people deserves the type of civil rulers they raise to positions of power.With this introduction, here are the various effects of long-continued monetary inflation:(1) The control of wealth is transferred from those who have worked to produce it to those who have control over spending the newly created money. Those who have control of the newly created money may be: (a) government agencies which spend the vast sums of new government money, (b) welfare recipients, (c) local or state governments that receive federal grants-in-aid, (d) foreign governments that have received foreign aid or (e) business firms that fill government contracts.

(2) When the newly created funds are used to purchase goods and services in the marketplace, entrepreneurs and producers adjust their economic activity to meet the new demand. Existing patterns of economic production are disrupted. In short, false monetary signals are sent to entrepreneurs and producers. Production thus comes to be more government-oriented and less consumer-oriented, for the effective demand is now coming from government sources.

(3) Prices begin to rise as the new money competes with existing money for the available supply of goods and services. Those who get their hands on the newly created money first are able to make purchases before prices begin to rise. They are enriched relative to those citizens who do not receive newly created money at all or who receive it only after prices have begun to rise. This poses a moral question, for government power is being used to enrich some members of society at the expense of others.

(4) Such government largess is always spent on a political basis, so citizens start to scramble and compete with each other to obtain “their share” of government spending. The incidence of demagoguery, graft and corruption rises; and an inevitable process of demoralization sets in. People start overlooking principle and start turning to expediency in their affairs because government policy pits one pressure group in society against another. People tend to lose their social graces because they subconsciously recognize that every citizen is now competing with all others in grasping for government-distributed largess. The individuals in society gradually become dehumanized as they are pitted against each other.

(5) The increase in government spending serves to bolster the level of government control in the economy. Politicians and government bureaucrats impose certain social and political demands on those persons in society who receive government monies. The leaders of business firms, schools and other organizations feel forced to acquiesce in whatever demands the government makes in order to receive government funds. As government spending balloons, government grows to be the single largest purchaser in the economy; so its impact in the market place also becomes very great. Business firms and other organizations tend to prostitute themselves in their search for profits or in their hope of receiving government handouts. A tendency for bribery and secret kickbacks begins to appear. Honest members of society are scandalized time and time again as new evidences of corruption are periodically discovered. Public attention is always focused on specific happenings rather than the system which generates such scandals. The general public is shocked at each new scandal because the people are not astute enough to realize that their system of government-by-law has been perverted into a system of government-by-men who use political power as a tool for serving special interest groups. The one point on which all opposing interest groups agree is that each wants more money from the government. An intense rivalry and competition to gain “political clout” begins and continues as people learn that political power is the surest avenue in getting more money.

(6) A new class of citizens rises to the top of society. Previously, when the economy was more consumer-oriented, market-directed entrepreneurs tended to accumulate and control productive wealth. But the successful acquisition of government funds calls for different gifts and skills; so people who are more politically adept start rising to the top of society. The control of productive wealth shifts to those individuals who are especially adept at political manipulation rather than economic production. Productivity thus begins to drop.

(7) Rising price levels cause lenders to be reluctant to lend money unless they are compensated through higher interest rates. So, interest rates rise. This squeezes many would-be home buyers out of the market, for they find that the combination of rising prices for homes plus higher interest rates causes their monthly mortgage payments to rise beyond their ability to pay. This reduces the level of home construction and thereby contributes to unemployment in the home-building sector of the economy. Disgruntled citizens who would like to own a home petition the civil authorities to “do something,” and they are joined by home builders and workers in the construction industry to start new government programs to assist people to buy homes.

(8) Domestic prices begin to rise relative to foreign prices, so the public buys cheaper foreign imports. The level of imports rises, and domestic producers and unionized workers, who suffer unemployment, petition the government for protection from foreign competitors. The civil government raises tariffs and imposes import controls in response. This causes consumer prices to rise even higher, and the economy begins to stagnate as foreign markets for export goods are lost; for, foreigners cannot buy from us unless they get dollars by selling goods to us.

9) Rising prices cause the need for government income to rise also. The people do not want to pay higher taxes, but they still want more government services. The Civil authorities turn to even greater deficits to make up for the gap between government tax income and government expenditures. The monetization of this additional debt causes prices to rise even faster. People become disenchanted with saving and investing, especially young people who have not yet developed habits of saving. The people turn to speculative activities instead of to productive investments. The real level of capital investment in productive tools and machinery begins to fall off because savings in real terms have dropped. This adversely affects the rate of real economic growth which begins to taper off until it finally becomes negative. The people’s standard of living subsequently begins to fall. In the meantime, a widespread feeling of “buy-now-and-pay-later” develops because people want to spend their money before it loses its value.

(10) Public employees at the state and local levels who are not direct recipients of the newly created money begin to feel that their pay levels have not increased proportionately with price levels and the pay of other groups. Firemen, policemen, teachers and others go on strike or begin to agitate for higher wages.

(11) Elderly people who have retired on fixed incomes are systematically pauperized because their pension checks buy less and less as price levels rise. They find it in their interest to band together to seek help from the civil government to increase their pensions. Because this is a large and influential group, politicians turn to demagogic promises to gain their votes. Politicians find it almost impossible to be elected or re-elected to office unless they strongly cater to the elderly people’s coordinated demands for higher benefits from the civil government.

(12) So much political pressure is applied to government leaders that they try all sorts of programs to alleviate unemployment, which strangely seems to coexist with rising price levels. Political forces arise to make civil government the employer of last resort. Government officials seek scapegoats on whom to blame the problems they themselves have created. They blame businessmen and labor unions for rising prices, and these two groups fight between themselves in attempting to place the blame on each other. The civil authorities, the very culprits who brought about inflation and rising price levels, impose wage and price controls as a “solution” to inflation and as a punishment on businessmen and labor unions. Gradually the entire economy becomes centrally controlled as the civil authorities intervene more and more, and the people lose their economic and political freedom.

When a government-run economy does not solve the many economic dislocations that have set in, the rulers may even turn to blaming their troubles on foreign nations. The resulting strain in international relations and the drop in international trade tend to create further misunderstandings. These create ideal circumstances for potential military hostility. A continuous state of international tension develops as hate and suspicion supplant the former peaceful exchange of trade between countries. This is what the totalitarian countries – Nazi Germany, Fascist Italy and Communist Russia – did, thus bringing about World War II. A more recent example of a centrally controlled country turning to military aggression in order to turn public attention from growing internal economic dislocations is Argentina and its aggressive move to reclaim the Falkland Islands from Great Britain in 1982. Observers from within the country reported that, rather than continuing to follow diplomatic channels in settling the Falkland Islands dispute, the military junta which controlled Argentina hoped to regain popular support by its military move.

The above-mentioned effects of monetary inflation do not all appear in every instance when the civil rulers follow inflationary policies, nor do the effects necessarily appear in the order listed. But they all are a subsequent result of prior monetary inflation which is long-continued. Acquaintance with these symptoms will enable the serious student of economics to correctly diagnose the underlying cause of seemingly unconnected surface problems in a troubled society. He will thereby be enabled to effect a cure: to reduce the size of civil government and to limit government spending so that deficits and long-term debt accumulation will not occur.

Tom Rose, “Money – Its creation and destruction,” Chapter in Economics: The American Economy, 193-197.




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