Establishing the Boundaries of a Biblical Worldview

Debt

In 1855, George Sweet highlighted the forthcoming changes to contract law. The changes that were introduced became known as limited liability law. The impact on the nature of contract and on business in general is hard to underestimate. Sweet, a barrister at law, explored the legal issues around the question of determining who is the debtor in business transactions.[1] Here’s a summary of some of Sweet’s key arguments in his presentation against limited liability.

It comes as no surprise that Sweet would link the question of debts (i.e. losses) to the question of profits. Profit and loss have a direct correlation to one another, according to Sweet. “A trader with limited or no liability is, like a corporation, an anomaly incapable of existence under any system of laws which does not make express provision for it.”[2] In other words, limited liability does not exist unless special provision is made for it. Who, then, is responsible for debts? Liability for debts is the express privilege of those who plan to collect the profits. “A little consideration will allow us to see, that the notion of sharing in the profits of a trade, with exemption from the duty of paying for the trade debts, could not possibly be recognized in the growth of the unwritten, judicial or common law of a state; and, therefore, that no system of law needs to contain, or can logically contain, any prohibition of such trading.”[3] For Sweet it is a matter of law and of logic that liability can be stepped around by those who plan to collect the profits. It can’t be done, he says. It is an “anomaly” to suggest there is a business person or corporation that has limited or no liability.

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Footnotes    (↵back returns to text)
  1. London: C. Roworth and Sons. Available as a free download from Google Books.↵back
  2. Sweet, p. 7.↵back
  3. Idem.↵back

The idea that rent money is “dead” money has been around a long time.

What is not said so often is that interest money is dead money too. This is not realized because people are under the mistaken notion that you can recover interest that you’ve paid, but you cannot recover rent that you’ve paid. It’s a mistaken notion because this is true only in an appreciating market. In other words, you can “recover” interest only if prices rise. And when prices don’t rise, or don’t rise enough, you won’t recover all or some of the interest you’ve paid.

Imagine this: you rent a house for 25 years and pay the rent on time. The landlord pays off his home with your rental money. At the end of 25 years you do not own the house; you merely walk away when you go and leave the asset to its owner.

Once you borrow, you join all borrowers and now you have a vested interest (pun intended) in price increases in the housing market.

When you buy a home, however, you might pay double the price over 25 years because of interest. Let’s say a $200,000 home, and after 25 years you’ve paid $400,000. Now if property values were to double over those 25 years, you could sell your home for $400,000 and recover all the interest you’ve paid as well.

But what would happen if you could only sell your home for its original $200,000 purchase price? Why, the interest you paid would be “dead money” — just as dead as if you rented through those 25 years. Why is it dead money? Because you could not “recover” it in the sale price of your home.

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The author of this article is Dr. Rousas John Rushdoony. @Copyright 1981, Chalcedon. Reproduced by permission. Chalcedon Report, No. 193, September 1981, P.O. Box 158, Vallecito CA 95251 USA.

cap on the stack of dollars

TO VIEW THE IDEA of legal tender theologically seems strange to the modern (and humanistic) mind, but it was once an important issue in the United States. The legal tender doctrine holds that the power to define legal money belongs to the state, and the state can therefore declare what constitutes legal money for the payment of all debts, public and private.

The Rev. John Witherspoon attacked the idea very early. It was unnecessary for any state to require people to accept good money. Gold and silver were always acceptable. A legal tender law simply requires people to accept bad money, and it does take civil coercion to make bad money acceptable.

The U.S. Constitution, Article I, Section 10, states that no state can make “anything but gold and silver coin a tender in payment of debts.”[1] The Federalist, no. 44, gives us Madison’s opposition to paper money. Patrick Henry opposed paper money, and Daniel Webster argued that a legal tender law is unconstitutional.

It was the lexicographer and Calvinist, Noah Webster, who spoke most bluntly. In 1790, Webster called a tender law “the devil.” He warned, “My countrymen, the devil is among you.” Of legislators who favored legal tender laws, he said that honest men should exclaim, “You are rogues, and the devil is in you!” Legal tender laws, he pointed out, were the preliminary to adulterated money, and all those who favored them were counterfeiters, deserving of the gallows, or at least the whipping-post!

Legal tender laws allow good debts to be paid with bad money, so that a debt is paid with only a fraction of the value it was contracted for. The result is a form of legalized theft, Webster held. He declared in part,

Remember that past contracts are sacred things; that legislatures have no right to interfere with them; they have no right to say that a debt shall be paid at a discount, or in any manner which the parties never intended. It is the business of justice to fulfill the intentions of parties in contracts, not to defeat them. To pay bona fide contracts for cash, in paper of little value, or in old horses, would be a dishonest attempt in an individual; but for legislatures to frame laws to support and encourage such detestable villainy is like a judge who should inscribe the arms of a rogue over the seat of justice.”

Why did Webster see legal tender laws as the devil manifested in law? We cannot understand the legal revolution wrought by humanism unless we understand that fact.

For Webster and others, gold and silver represented natural and hence a God-given order of things, whereas legal tender creates an arbitrary value which can only stand with coercion. Values are God-created, not man or state created. The temptation of Satan in the beginning was to doubt God’s order: “Yea, hath God said?” (Gen. 3:1). Rather, the tempter suggested a new order in which man creates his own laws, values, and morality: every man shall be his own god, determining or knowing good and evil for himself (Gen. 3:5). In such a society, the state as man incarnate can set aside God’s laws and make its own laws. It can issue a legal tender law and require obedience to it. (In God’s natural order, there is no need to require the use of gold and silver; they commend themselves and are in demand.)

The essence of the theocracy as Scripture’s law presents it is that the state is at best minimal. A.J. Nock saw the Old Testament design as one for government, not a state. Repeatedly, God declares, This do, and live (Deut. 5:33), etc.). God’s law is the way of faith and life, whereas “he that sinneth against me wrongest his own soul: all they that hate me love death” (Prov. 8:36).

Legal tender laws are thus the tip of an iceberg. They represent a man-made world, one in which the state, by total coercion, seeks to overthrow God’s order and to replace it with a humanistic one. In this new order of things, the state is the new god walking on earth, and demanding totalitarian powers and command. There is a symbolic significance that, not too many years after taking a deliberately statist course with respect to money and banking, the United States, on its dollar bills, featured a new symbol and the Latin words proclaiming the new order of the ages. That new order is statist tyranny.

Legal tender laws thus cannot be viewed in isolation. Churchmen show no interest in them, although they are a clear manifestation of humanism in economics. On the other hand, economists see legal tender laws in isolation from theology, although they are a clear expression of the new established religion, humanism. Both are manifesting tunnel vision and failing to recognize the roots of the problem.

Noah Webster saw the issue; it is a moral and theological issue. Webster saw, and again and again called, legal tender laws “the devil.” He saw that these laws represented, “as deliberate act of villainy,” a contempt for God’s justice, the legislation of theft into law, and the deliberate conversion of the state into an instrument for theft and evil. He was right.

 

Footnotes    (↵back returns to text)
  1. A similar clause appears in Section 115 of the Australian Constitution — IH↵back

Every so often, you get an accumulation of business collapses. When this happens, it is called a recession. In my book, Making Sense of Your Dollars, I outlined the biblical view of debt, and argued that the Bible is anti-debt.[1] That proposition generated several responses from subscribers. Most of them were attempting to tell me that my understanding of debt was wrong, and that by a judicious use of debt one could become better off, financially speaking. But the economic events around the world provide adequate evidence of the illusory nature of wealth built on debt.

It is not just regular businesses that fail. Banks fail, too. More than one prominent fund manager has gotten into difficulty owing to the use of debt. This should come as no surprise to us. When financial institutions (e.g. banks) borrow “short” and lend “long” you know that there is great potential for financial ruin for many people.

It is a strange, if not ludicrous, idea that a bank or any other institution, can borrow money from “depositors” with the promise that the money is “at call,” yet lend that same money out for periods of up to 25-30 years. You’re told that banks are the safest place for your money. This may not be correct, even though government guarantees depositor funds up to some amount. (A government guarantee is about as valuable as the paper they use for money.) The banks are playing the game: borrow short, lend long, and pocket the difference.

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Footnotes    (↵back returns to text)
  1. See my book, Making Sense of Your Dollars: A Biblical Approach to Wealth (Vallecito, CA: Ross House Books, 1995), Ch. 7.↵back

Various currency paper banking and finance money savings

“Your silver is no longer pure, your wine is watered down.” (Isa.1:22 CJB)

Every time I read the book of Isaiah I cannot help but appreciate how relevant his words are to contemporary culture. Here, in this indictment against Israel, the prophet lists the sins of Israel. They were not just ‘spiritual’ in content, but it came down to practical realities and two of the most cherished items in any society, money and wine.

In Isaiah’s time, though the prophet spoke, he was ignored. Did that make his indictment any less real? In God’s providence, Isaiah received his call in about the year 740 B.C. It was no coincidence that at same time the city of Rome was born. God’s prediction of judgement delivered through the prophet was thus in preparation for an event yet over 800 years away. For not until the year 70 A.D. did the Romans bring an end to everything that Israel attempted to stand for. Not only the destruction of the Temple, but the disbursement of the people to other locations. The city of Jerusalem was laid waste.

The government itself has solicited and obtained the assistance of the population to jointly debase the money supply.


In our own time, it may be that we are not seeing the debasement of wine with water. Competition and government watchdogs keep an eye on this. But, in the words of Henry Hazlitt, “No subject is so much discussed today—or so little understood—as inflation.”[1]

In the case of money it is an entirely different story than that of wine, for the government itself has solicited and obtained the assistance of the population to jointly debase the money supply.

For too many people the words of Isaiah on the debasement of money are a curiosity. We do not have silver as our currency any longer. We have, in its place, pieces of paper (or in Australia, pieces of plastic) and token coinage that are a substitute for silver (or gold). At least, that’s how the paper currency came into existence in the first place, as ‘promissory notes’ redeemable in hard metal. But once the redemption option was removed, paper currency was free to be manipulated at the whim of whoever controls the manufacture and issuance of that currency.
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Footnotes    (↵back returns to text)
  1. Henry Hazlitt, The Inflation Crisis and How to Resolve It (Kindle edition, [1978] 2011, Loc. 89).↵back

The Responsibilities of Lenders

Thus far our discussion has centered on those who borrow, and those who can benefit from debt, the sellers of goods. But there is yet another person who benefits from debt, and that is, naturally, the lender. Interestingly, the Bible also has some comments to make to the lender. The passage in Deuteronomy 15:1-11 places limitations on the actions of lenders. First, they are to cancel all debts to a brother in the seventh year. At the end of every seven years, the creditor is to cancel any outstanding debt. Second, this limitation did not apply to foreigners. Third, the requirement to cancel debts was no excuse not to lend to a brother in need. Fourth, the fact that the sabbath year was drawing close was likewise no reason to withhold assistance to a brother.

The sabbath year laws, interestingly, put a restraint upon the lender, not the borrower. This passage gives no encouragement for debt, even the limited use of debt. What it does do is put a strict limitation on lenders. The debt was not to be collected in full. At the end of the seventh year whatever remained unpaid was to be canceled. It is expressly stated that the Sabbath year’s imminence should not be used as an excuse to withhold funds from those in need.

If nothing else, this provides an indication that long-term lending is to be avoided. By long-term is meant longer than seven years. And if long-term lending is to be avoided, this naturally abolishes any notion of long-term debt.

The importance of this Old Testament requirement has been captured by Rushdoony:

[F]orgiveness is a basic aspect of the sabbath. The grace of God unto the remission of sins is the covenant of man’s sabbath. It means rest, release from the burden of sin and guilt. The Lord’s Prayer, which looks forward to the great sabbath (“Thy kingdom come”), has as a central petition the jubilee release: “And forgive us our debts, as we forgive our debtors” (Matt. 6:12). Lenski translated this, “And dismiss for us our debts as we, too, did dismiss our debtors.” The translation “trespasses” is good, in that it points more clearly to our sins; but the word “debts” has a broader connotation often, as it definitely does here. As Lenski observed, “So great are our debts to God that we can never hope to pay them, and our only help is that God will remit them gratis, by way of gift, for Christ’s sake.”[1]

The forgiveness of debt in the seventh year is thus an indication of the release that God provides from the condemnation of our sin. This requirement, therefore, is of very special significance and should be kept.

Eight Arguments Against Debt — 8: Predicting the Future

Footnotes    (↵back returns to text)
  1. R.J. Rushdoony, The institutes of Biblical Law, Volume One (Nutley, NJ: Craig Press, 1973) p. 144.↵back

Managing Money With A Crystal Ball

No one knows the future with any certainty. The future is known to God alone, and we must live each day in ongoing dependence for His daily provision during the circumstances in which we find ourselves. Ecclesiastes 11:6 says, “In the morning sow your seed, and in the evening do not withhold your hand; for you do not know which will prosper, either this or that, or whether both alike will be good.” Although God is our heavenly Father and promises never to leave us nor forsake us (Heb. 13:5-6), this does not mean we have a trouble-free life. Christians get sick; they are killed in battle; and their businesses can flounder.

When we take on debt, however, we are saying that we know the future with enough certainty that we can guarantee payment of the loan. The Sabbath year debt cancellation, however, places a limit on how far we can safely make these kinds of assumptions about the future. The person who takes on a 25-year mortgage is, in effect, saying to the lender that he is sufficiently knowledgeable about the next 25 years that he can guarantee to make the repayments. Our choice is whether we accept God’s limitation on debt or whether we substitute our own standards for those which He has given us in the Bible.
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Usury is impudent financial mismanagement.

Reading through the disciplinary actions of the Ecumenical Councils of the early church can be an eye-opener. The Councils might often be known for the theological issue that was paramount at the time, but the Councils also issued canons that were intended to regulate practice of the faith.

Thus, for example, the Council of Nicea (325 A.D.), addressed the Arian issue, the dating of Passover, but also issued 20 canons on a range of issues. There were many canons regulating bishops and priests. For example, a man who castrated himself could not be ordained. A bishop, priest or deacon could only live with a woman who was his mother, sister, aunt, “or any other woman completely above suspicion.” A bishop or priest who left his congregation could not be installed in another congregation. A bishop could not ordain someone to the priesthood who had been rejected by his own local bishop. Orderly conduct was the order of the day.

But Canon 17 states,

Seeing that many of those enrolled in the clergy, being full of greed and of a shameful money-grubbing spirit, have forgotten the sacred word which says that ‘he did not give his money out for interest’ and who in lending out their money require a certain percentage in return, the holy and great council has judged it just that if anyone, after the publication of this decree, takes interest for a loan or, for whatever reason, holds back half of the loan or invents another thing with the mind to realize a shameful profit, he shall be deposed from the clergy and taken off the clergy list.”

The Council recognized a issue. Interest rates were established by Roman law, apparently running at 12% per month. There was certainly money to be made in the usury market.

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Somewhere there is a Parliament or Congress about to vote on their national debt. Usually, the limit has been reached and the government must either extend the limit or stop spending. It takes no genius to figure out the course of action that will buy the most votes next election.

Every age has its myths. Our age is no different. One of the myths today is the idea that we can all get richer by spending, especially if we spend other people’s money.

It takes only a few seconds of careful thought to realize that such a notion is silly.

There are a couple of fallacies behind this idea. One of the fallacies is that money is the only form of wealth, and so long as we have more money we have thereby become richer. That such an idea is given credibility highlights a problem of our education system: its failure to teach people to think. And if you can’t think, said the Ford founder, you’re not educated.

The second fallacy attached to the idea of spending ourselves rich is the notion that of all the kinds of spending, government spending are more likely to make us richer. Somehow, bureaucrats and politicians know better than anyone else how to spend money so everyone becomes wealthier.

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