Rage in the Temple

On the Hidden Danger of Debt

Introduction

Christianity was born in an era when multiple debt crises brought Roman society to its knees. The forgiveness that is a tent pole of that religion was originally meant in the financial sense. This essay extends a common critique of Fractional Reserve Banking into a penetrating insight into the original meaning of Christianity.

Fractional Reserve Lending

Sound-money advocates— the so-called “gold bugs”—are fierce critics of our Fractional Reserve Banking system. Their chief complaint is that banks in such a system create money out of thin air and then charge the rest of us to borrow it. While it’s not immediately obvious how that works, they’re essentially correct.

The easiest way to understand their criticism is to re-watch the 1946 film It’s a Wonderful Life. In that Christmas classic, Jimmy Stewart runs the Bailey Building & Loan as George Bailey. “Why, your money’s not here!” he pleads during a bank run on that venerable institution. “It’s in Joe’s house, and in the Kennedy house!”

This scene shows the audience how banks create money from nothing when they make loans. The kerfuffle at the Bailey Building & Loan arises when George’s depositors realize he’s loaned out their deposits without their knowledge. That’s what he means by “your money’s not here”. They’re confused because George didn’t draw down their account balances to reflect the fact that he’d loaned out their money. Their full balances are available for withdrawal.

During the bank run, a grumpy curmudgeon named Tom demands and receives his full $242 account balance. But if Tom’s original $242 was already loaned out, that means those dollars are already back out in the economy. George has to give him $242 out of his honeymoon fund, which joins the original $242 in circulation. This example illustrates how there are more dollars in circulation after George makes his loans than there were before. In this case, twice as many. That’s why “gold bugs” compare Fractional Reserve Banking to a counterfeiting operation.

In fact, it’s accepted that almost all currency comes into existence through lending. A commonly-cited approximation states that 97% of the money supply exists only on paper as bank deposits, while a mere 3% exists as actual physical currency minted by a central authority. Through a multiplicative process of lending and redepositing, Fractional Reserve Banking amplifies a 3% base into our entire money supply. And George Bailey shows us how the process works.

But when you extend this logic to include debt, it becomes clear that our Fractional Reserve Banking system has an Apocalyptic countdown clock built into it…

Apocalypse

The problem is that a Fractional Reserve Banking system always contains more debt than currency. We’ve already established that George Bailey and bankers like him create most of our currency through lending activity. Obviously, loaning money also generates debt. That means almost all dollars pop into existence accompanied by a dollar + interest worth of debt.

If there are X dollars circulating in our economy at any given time, there must also be X + Y dollars worth of debt on our collective books. That means, by definition, all debts cannot be paid off. No matter what we do, there will always exist more dollars worth of debt than dollars worth of currency.

Dollars of debt with no corresponding dollars of currency accumulate gradually, like the ticking of a time bomb. Today, every category of debt is at record levels. To name a debt category is to discover a historically high volume; be it credit card debt, student debt, auto debt, medical debt, mortgage debt, or even sovereign debt.

We can afford to service this ever-growing debt pile as long as we continuously grow the overall size of the economy. But that’s unsustainable; we’re already up against practical limits on growth.

We can also borrow from the future to pay present debts. But that only results in even more debt, though with a later due date that buys us time. For generations, we’ve used these stop-gap measures to manage the fact that our economy contains more debt than currency. But basic math tells us it can’t be managed indefinitely. Something has to give.

Once we can’t grow or borrow any more, a lack of available dollars to service our debt will result in snowballing delinquencies. Then we’ll face the question around which all of history pivots: will we have mass debt foreclosure or mass debt forgiveness?

Forgiveness

The Kings of the Bronze Age periodically forgave the debts of their subjects. They had to. Because early on in the Agricultural Revolution, creditors realized that foreclosure was far more profitable than merely collecting interest.

No one could predict floods, famines, wars, or plagues. But the moneylenders knew they only had to wait for unexpected events like these to render debts unpayable. Then they foreclosed on pledged collateral, like land or slaves.

To those Mesopotamian Kings, a heavily-indebted population was an existential risk. Creditors who grew too rich seized power for themselves, and debtors who grew too poor defected to rival civilizations. The Kings avoided these problems by periodically resetting the economic scoreboard. It wasn’t because they were nice guys. It was out of necessity. They stabilized their societies by making the economy into a series of games, instead of one winner-take-all Super Bowl.

That’s why the famous Code of Hammurabi commands debt forgiveness. During an episode known as the Babylonian Captivity, similar commandments were copied from the Babylonian into the Jewish tradition. You can still find them in the Old Testament books of Leviticus, Deuteronomy, Isaiah, Jeremiah, and Nehemiah (we’ll refer again to the book of Isaiah in a moment). Debt forgiveness was also practiced in Classical Greece; Solon of Athens touched off a golden age by cancelling his subjects’ debt in 594 B.C.

But history took a momentous turn a few decades later in 509 B.C.

In that year the last king of the Romans, Lucius Tarquinius Superbus, tried to copy Solon’s debt forgiveness strategy. But it was too late; he was already at the point where creditors who grow too rich seize power for themselves. The wealthiest Roman families weren’t keen on having debts owed to them written off. So they ran him out of town and established a Senate to rule as an oligarchy.

That’s how Rome became history’s first great experiment in NOT forgiving debts…

Christianity

Instead of forgiving debts when crises arose, the rigid Roman legal system did the exact opposite: it enforced contract terms. That meant systematic foreclosure. The courts awarded assets pledged as collateral on bad loans to rich creditors. As a result, wealth inequality spiraled out of control. By 104 B.C. only 2,000 Romans owned property in a city of a million people.¹

This systematic transfer of wealth from poor to rich was the chief cause of the collapse of Roman society. According to economist Michael Hudson, “Livy, Plutarch and other Roman historians described classical antiquity as being destroyed mainly by creditors using interest-bearing debt to impoverish and disenfranchise the population.” ²

One contemporary saw the collapse coming. As a Jew living under the Roman occupation of Judea, Yeshua Ben Yosef was all too familiar with the debt forgiveness commanded in the Hebrew scripture. He understood that forgiveness led to salvation, while foreclosure guaranteed apocalypse. Today, we know Yeshua by the Greek version of his name: Jesus.

In the New Testament, Luke tells the story of Yeshua’s debut sermon in his home town of Nazareth. He unfurls the scroll of Isaiah from the Hebrew Bible, and proclaims the debt forgiveness commanded there with the words: "The Spirit of the Lord is upon me, because he hath anointed me to preach the gospel to the poor.”³

“Gospel” means good news. But Yeshua’s news was not good for the wealthy. He claimed that it’s easier for a camel to pass through the eye of a needle than for a rich man to enter the kingdom of God. And he violently assaulted moneylenders who dared to make loans in the Temple of Solomon. According to John, he actually thrashed them with a whip.

But in the Roman Empire, the rich had everything their own way. Everyone knows that local religious leaders conspired with their Roman governor to have Yeshua murdered. But few realize that the true demolition of his ministry came 400 years after the fact…

Jesus doesn’t take kindly to money lending

Sin

Yeshua’s dire warnings about debt turned out to be prophetic. At first, the Roman authorities tried to stamp out his message by persecuting Christians. But as his apocalyptic prophecies started coming true, the outlaw religion exploded in popularity. Eventually, even the Roman ruling class was forced to convert. But, as always, the wealthy weren’t keen on having debts owed to them written off.

That problem was solved for them when a church father from North Africa strode onto the stage of history. Augustine of Hippo reinterpreted “falling into sin” to mean succumbing to moral failings—particularly sexual ones—instead of falling into debt.

Saint Augustine argued that what people needed to have forgiven was their sexual misdeeds, not their debts. In so doing, he relocated the forgiveness demanded by Yeshua over the horizon of death, where it couldn’t inconvenience the balance sheets of the rich.

Augustine made Christianity palatable for the wealthy. But if there was ever any hope that Yeshua’s message could have saved Roman society from ruin, this garbling of his words dashed it.

Conclusion

The bank run scene at the Bailey Savings & Loan illustrates how Fractional Reserve Banking creates inevitable debt crises. The natural tendency of debt is to grow beyond the means of debtors to pay. It is, after all, much simpler to promise future payments than to actually deliver on them. Regardless of the morality of the borrower, some percentage of all promises made in good faith will turn out to be untenable in the end.

The ultimate question that has faced societies since the Agricultural Revolution is what to do with debts that turn out to be unpayable. Will we blindly unwind contract terms and award property to creditors, with no thought to the social consequences? Or will we save our society by violating contract sanctity?

To appreciate the gravity of our situation, consider that Jesus might well have thrashed George Bailey with a whip if he had been present at the bank run. Now that’s my idea of a Christmas movie!

1. Will & Ariel Durant, Caesar & Christ, 1944, page 118

2. Michael Hudson, ...And Forgive Them Their Debts, 2018, page xxvi

3. King James Version, Luke 4:18