Zero interest rate policy from a Christian viewpoint

_ Peter Ruch, former pastor in three parishes, board member of the Liberal Institute. Zurich, 28 November 2021.*

Executive summary

Scarcity was the norm for millennia. Millions of people died of starvation or poor nutrition. The need gave people the idea of producing an excess of individual goods, for which the circumstances were favourable, and exchanging them for other goods. The exchange allowed better care and a higher quality of life even in prehistoric times. Money plays a central role in the rise in the standard of living, while loans and interest allow time-shifted exchanges.

The zero interest rates and the flood of money are extremely questionable. They tempt you to invest in projects with no prospect of success. With interest rates in line with the market, the risk would be too high in many cases, and the projects would not be implemented or would be redimensioned to a level compatible with credit.

Storing goods and funds means postponing consumption into the future. It has been one of the most important cultural assets for millennia and has played a key role in ensuring that people and societies have developed. If what you have saved loses its value, it makes more sense to use everything straight away. Because zero interest rates drive up consumption and waste, environmental problems are exacerbated.

Zero interest rates and cheap money shift consumption from the future to the present and thus unleash a characteristic that is genuinely inherent in us humans: greedy wish fulfilment up to addiction.

The abolition of interest rates disrupts the economy, society, the state and the environment. It is likely to go down in history one day as a serious failure of the state.

In the well-known story by Leo Tolstoy with the title “How much earth do humans need?” The readership gets to know the farmer Pachom, who has the chance to acquire an enormous fortune within a day. He had already expanded his business several times through diligence and buying land, but it still seemed to him that life was causing him too much trouble and offering too little profit. When he heard that good land could be bought cheaply from the Bashkirs, he set off. The eldest of the Bashkirs informed him that a day of land costs a thousand roubles: one day, that is, what the buyer was able to walk around in one day. Pachom set out at sunrise and pulled out vigorously in order to take possession of as large an area as possible including a small lake and a piece of forest. When he ran to the waiting Bashkirs at sunset, he was so exhausted that he suffered a heart attack and fell dead to the ground. According to the contract, the thousand roubles went to the Bashkirs. Two square meters were enough for his grave.

Tolstoy has portrayed claims to possession up to greed and thus a common human trait in several stories. They are not intended as a black and white painting, according to which good people are frugal and bad people are greedy. A later Russian philosopher, Alexander Solzhenitsyn, expressed the conviction that the boundary between good and evil does not run between peoples, races, sexes or social classes, but through every human heart. At least every person has a destructive potential. Therefore, the community must be organized in such a way that greed, like other questionable qualities, has the lowest possible chance of breaking out and causing damage.

The legal system is shaped by old principles, which limit the abundance of power and prevent or hinder the abuse of power: Clearly defined authority and responsibilities, limited term of office, separation of powers, control organs, rule of law, “Nulla poena sine lege”, “In dubio pro reo”. The most important positions can already be found in the Bible. The Ten Commandments are created by God and are not subject to human arbitrariness. They protect life, truthfulness, property and the family.

Scarcity, exchange and money

Analogous to the legal system, the economic system also needs guard rails that set limits to human greed and guarantee an economy that is as orderly and humane as possible. Some barriers arise of their own accord because goods are scarce and because added value does not grow into the sky either. Scarcity was the norm for millennia. Millions of people died from hunger or from poor nutrition. The need gave people the idea of ​​producing an excess of individual goods, for which the circumstances were favourable, and exchanging them for other goods. The exchange allowed better care and a higher quality of life even in prehistoric times. The biblical creation story describes the sons of Adam and Eve, Cain and Abel, as farmers and shepherds. A certain specialization is one of the archetypes of human economics. The division of labour between men and women is excluded here because it is based on structural and functional differences.

If different goods, such as animals for tools or textiles, are exchanged, the exchange goods must be valued. In addition, there should be a delay if I can find a buyer for my skins today, but he can only deliver the wood I want later. Then I give him the skins and get a voucher for future use. The voucher must keep its value. Because delay requires trust, it is called credit. The right to claim against a physical or legal person is nothing other than a loan. It serves the prosperity of everyone involved if I can exchange this loan with a third party. The medium of exchange, which retained its value for a long time and was accepted by as many actors as possible, had to be widely used and was given the name money.

Money in biblical times

Money comes up early in the Bible. It is called késeph in the Hebrew language. This means first of all silver in its natural state and later the purified silver as a commodity. Until the exile around 580 BC. As a rule, pieces of silver were chopped off an ingot and weighed each time (Gen. 23:16). Logically, weights formed the currency units: lot and shekel, later talent and pound. The principle of precious metal currency was valid until the 20th century, as shown by the French expression argent and the currency units derived from weights (lira, peso, etc.). The material could also be used to denote currency, like the guilder since the 14th century.

In Old Testament times, royal houses and temples were the centres of capital formation as recipients of tribute and taxes. In the year 701, for example, King Hezekiah was able to prevent the Assyrian attacker Sennacherib from taking Jerusalem by paying tribute of 300 talents in silver and 30 talents in gold. He took the money from the temple and the royal treasury (2 Kings 18: 13-16). Minted coins have been in circulation since the Persian period, which gave the trade a powerful boost. However, lower external prices could lead to the impoverishment of smallholders. Nehemiah describes the resulting social need (5.1-13). Despite abuse and injustice, the Bible never rejects money. Only the excesses of money addiction are denounced. Even the prophets leave no doubt about their judgment on the misuse of money (Isaiah 5: 8, 10; Amos 2: 6).

However, the warnings indicate that there was and is a good use of the money. “Gives the emperor what is the emperor’s, and God what is God!” brings the demand for an appropriate use of money to the appropriate formula (Matthew 22:21). According to the biblical understanding, money is an instrument for trading. Since transactions can be delayed, the money had to be of stable value. This property of the precious metals then served the formation of capital as soon as production surpluses were possible.

Economic fluctuations

A telling story on the subject of economy and prosperity can be found in Genesis 41: The Pharaoh had a dream of seven fat and seven lean cows. Josef was called in as a dream interpreter and interpreted the dream as a prognosis of seven lush years and seven years of hunger. In order to secure supplies, Josef, meanwhile appointed minister, organized the economy as an immense pantry. Egypt was a centralized state economy anyway. Despite all the fairy-tale quality, the story can be interpreted as an indication of economic fluctuations. Today’s economics also reckon with fluctuations in demand and production, which lead to changes in the degree of utilization of the production potential. Joseph Schumpeter assumed the four phases recovery, prosperity, recession and depression.

It is not just the economy that is subject to fluctuations. All life is subject to rises and falls. The third chapter of the book of preachers, Hebrew Qohelet, offers a meditation on this. Opposites such as planting and tearing up, breaking off and building up, searching and losing, tearing up and sewing, also crying and laughing, are not presented here as alternatives, but as realities that are all part of life. The list begins with give birth and die. Death stands for disappearance and decline and is the vanishing point of everything that is unwelcome to humans. At the same time, it stands for food and a new beginning. Humans, animals and plants feed on dead organic material. In first letter to the Corinthians (Chapter 15) Paul compares the resurrection of the dead with a grain of wheat: It dies while germinating and hangs withered on the roots of the new plant. The resurrection hope, already laid out in the Old Testament, is the centre of the Christian faith. Perfect bliss is reserved for eternal life and is not attainable in this world.

Heaven on earth

In the old worldview the world was vaulted by heaven and, as it were, under a cellar by hell. This view of the world gave us a lot to think about and was by no means accepted thoughtlessly. The modern worldview dissolved the distinction between time and eternity. Eternity vanished, and the only real reality was the tangible and measurable time axis. The ideas of salvation and mercy live on, however. They are now located on the timeline and have become projects. Thanks to modern technology and enormous added value, billions of people now live in comfortable conditions. Today’s standard of living in the western world would appear heavenly to our ancestors. Meanwhile, prosperity has not done away with pain, rifts and depression. We still see gaps between our life situation and paradise. Prosperity has calibrated people differently. If Marx was right anywhere, it was that being determines consciousness. Comfort and security determine the consciousness of modern people, which is why the demands grow immeasurably.

Two types of insurance

Insurance has contributed to this since the 19th century. Risks are insured and will be reimbursed in the event of damage. Capital reserves, actuarial mathematics and reinsurance ensure that insurance cover does not collapse even in the event of major damage. These standards are missing in the compulsory state insurance in the pay-as-you-go system. You can do without capital reserves because the legislation obliges all citizens to have policyholders. An eloquent example of this is the pay-as-you-go system for old-age provision. Although the old-age and survivors’ insurance (AHV) has a V in its name, it is not an insurance, but a forced redistribution program for all residents. The redistribution takes place from employees and employers to retirees and from high-earners to people with modest incomes. With the compulsory wage deduction, you acquire the right to receive a pension in old age – with IV in the event of disability.

When the AHV was introduced in 1948, pension payments to the old generation began immediately. She received pensions without paying any premiums. The asymmetry seemed justified because the generation concerned had to accept hardships for decades – two world wars and crisis years. However, that does not change the fact that the gap between contributions paid and earnings has been widening for decades. The statistical life expectancy of 65-year-olds has risen from almost 13 to over 24 years since the introduction of the AHV. In 1948, 65-year-olds could expect to spend 17 percent of their entire life as retirees. A current retiree spends 26 percent of his life in retirement, a new retiree even 29 percent. It is to be feared that there will be a generation that has paid in for years but does not receive a pension in retirement because the system has collapsed. Nevertheless, politicians pretend that the pay-as-you-go system will work forever.

The old-age pension through redistribution has solved one problem and created new problems at the same time. The wage percentages have been increased several times and are weakening Switzerland as a production location. The birth rate has fallen, changing the proportions between the working population and retirees at the expense of the younger generations. The immigrants – often portrayed as AHV supporters – have a negative pension balance overall, want a pension later on, and exacerbate the problem. Switzerland has the advantage that the pay-as-you-go system only has to cover part of the pension requirement. The other two pillars – pension fund and private provision – are just as important or more important. In other countries, old-age provision depends entirely on the pay-as-you-go system. Demographic changes mean that an ever higher proportion of pensions must be covered from current taxes instead of wage deductions. In Austria it is more than a quarter. Italy and France suffer from the same disease. Your explicit debt levels are 2 and 2.5 trillion euros, respectively. In addition, there are implicit debts, i.e. pension entitlements of at least 1.5 trillion euros each.

With such pension systems, an economy cannot endure recession or deflation. Downward movements could upset the welfare state because of pensions. Politicians and central banks believe that they have found a way out of this impasse through a glut of money and zero interest rates. It is a worldwide phenomenon. Some economists believe that such a measure can be useful over a very limited period of time. If it lasts longer, it becomes a time bomb.

Conclusions

The zero interest rates and the flood of money are extremely questionable from a theological and ethical point of view. The reasons for this assessment are as follows:

  1. Disincentives

(1a) They encourage investment in projects with no prospect of success. With interest rates in line with the market, the risk would be too high in many cases, and the projects would not be implemented or would be redimensioned to a level compatible with credit. “Which of you, when you want to build a tower, won’t sit down first and calculate the costs to see whether you have enough to do it. Otherwise, if he laid the foundations but didn’t finish the building, everyone who saw it could make fun of him. ” (Luke 14, 28-30) Such arithmetic has become unnecessary since the central banks squandered the money without interest.

(1b) The storage of goods and funds means the postponement of consumption into the future. It has been one of the most important cultural assets for millennia and has played a key role in ensuring that people and societies have developed. If what you have saved loses its value, it makes more sense to use everything straight away.

(1c) Because zero interest rates increase consumption and waste, environmental problems are exacerbated. Commuter distances of over 100 kilometers by rail or road have long since become the norm. They don’t hurt anyone because the state also offers mobility at low prices and thus sets further false incentives. Thousands and thousands of rail customers only pay three cents per kilometre.

  1. False results

(2a) Zero interest rates and cheap money shift consumption from the future to the present and thus unleash a characteristic that is genuinely inherent in us humans: greedy wish fulfilment up to addiction. The prototype for investing in the future is agriculture. Food is thrown on the ground to

to secure and multiply the food for the future. It is no coincidence that, according to the Old Testament, sowing was sometimes carried out with tears (Psalm 126). It was uncertain whether the seeds would come up. If not, they would have been consumed more wisely. The Latin word for agriculture is colere, the participle cultum. Investing in the future is the epitome of culture. Cheap money shortens the horizon and pushes the cultural back in favour of the animal.

(2b) The expansion of the volume of money threatens monetary devaluation, which makes it advisable to invest one’s savings in material assets. At the top of the list are securities and real estate. Their prices have risen by 60 percent since the financial crisis in 2008 until the Corona crisis. The effect is reinforced by the fact that the pension funds also have to invest their billions of dollars accordingly. The same state that cancels the interest through its central bank prescribes a conversion rate for the pensions that the pension funds can never generate. They have therefore started to spend a significant part of the money that the working population has now saved as pensions. This illegally diminishes the retirement capital of the younger generations, weakens the middle class and opens the gap between rich and poor.

(2c) The same chapter includes the leasing interest in the car trade. As a result of the National Bank’s interest rate policy, they have fallen to 0.9 percent and are driving up the number of vehicles, kilometres driven and traffic jams.

(2d) The same state that encourages waste is recommended as a saviour from climate change. That the climate is warming and that the CO2 emissions are decisive is assumed here, despite some question marks. It is unbelievable when the state bureaucracy, as an important driver of CO2, wants to save the climate or even the world with regulators. The state itself is in charge of large-scale projects that serve to expand claims: Promotion of residential construction for more living space per person; Motorways, road tunnels to avoid traffic jams; new railway lines and tunnels to cut travel times by foolish minutes. Gigantic amounts of concrete are used in all of this. During cement production, large amounts of carbon dioxide are produced, which is supposed to be avoided.

(2e) The flooding and devaluation of money hits savers in particular and undermines the incentives for self-provision. Private and national debt allows us to live today at the expense of our children and grandchildren. “It is not the children who are obliged to put something aside for their parents, but rather, conversely, the parents for the children”, Paul writes in the second letter to the Corinthians (12:14). Even completely different cultures such as Chinese Confucianism consider it an honourable duty to give to the next generation and not to take from it. The central bank and the state financial policy have been doing the opposite for years and are also forcing this wrongdoing on the citizens.

  1. Misinterpretation

(3a) The zero interest rate simulates an emergency situation that no longer exists and is only maintained for the sake of hedonism. If a real emergency such as the Corona crisis occurs, which would justify extraordinary measures, there is no room for manoeuvre in most state budgets.

(3b) The zero interest rates also allow national debts to be increased at will and to withhold interest from creditors. This also means illegal redistribution and violation of property rights. The abolition of interest rates disrupts the economy, society, the state and the environment. It is likely to go down in history one day as a serious failure of the state.

*Translated with kind permission from the original on Liberal Institute and the book: Herausgeber: Reichmuth K. (2021). Neue Währungen in Sicht. Zürich.

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