Catholics Should Care About Monetary Policy

One of the most fascinating aspects of politics in the late-19th century was the deeply ideological nature of discourse. Average citizens had opinions not just on hot-button social issues and perhaps loose convictions on the size of government, but they had opinions on complex topics like monetary policy as well. 

Monetary policy is a term that scares normal people. The most they hear about it is a brief one-minute segment on their local news station or in The New York Times letting them know that “The Federal Reserve hiked/lowered the Federal Funds rate today…,” or something along those lines. Not a thought more than a passing glance. But monetary policy is vitally important, and it should be cared about once more, especially by Catholics.

Within Catholic Social Teaching much focus has been given to discussions of labor-capital relations, localized property ownership, and just wages or prices. Long before Rerum Novarum was promulgated, scholastic scholars were discussing what might be thought of as social teaching around exchange and money. 

Economists like Murray Rothbard, Joseph Schumpeter, and Marjorie Grice-Hutchinson generally regard the beginning of modern economic thought as starting in Renaissance Spain in what would be called The School of Salamanca, named after the University of Salamanca. Here, early Jesuits formulated theories on theology, natural law, property rights, and, for our observation here: money. 

Martín de Azpilcueta, a canon lawyer and moral theologian of that age, was one of the first (if not the first) to formulate a quantity theory of money whereby the value of money, its purchasing power, is inversely related to its supply. Luis de Molina, who taught at the University of Coimbra, identified the role that money creation played in inflation. Juan de Mariana, a Spanish Jesuit, wrote on the issue of money and condemned rulers who debased their currency as committing a sin. Already in these scholastics and their students do we see the revelation that money is the root cause of inflation and the societal effects it has. 

Even prior to the School of Salamanca, we see monetary theory written about by a Bishop of Lisieux: Nicolas Oresme. Jörg Guido Hülsmann, a German economist in the Austrian tradition, describes Oresme’s views on the morals of creating money in his book The Ethics of Money Production: 

Nicholas Oresme distinguished three ways of gaining through money in unnatural ways: (1) the art of the money-changer: banking and exchange, (2) usury, and (3) the alteration of the coinage. “The first way is contemptible, the second bad and the third worse.”

Mariana would join Oresme in denouncing the redistributive effects of inflation, especially through debasement of currency. Both would cite it as a violation against the seventh, eighth, and even possibly the 10th commandments. Inflation was clearly seen as morally evil—especially if rulers engaged in it to rob their citizens. 

In the nineteenth century, Americans understood this and fought central banks and inflationism tooth and nail. The First Bank of the United States was unpopular enough to fail to be renewed. The Second’s opposition fueled Andrew Jackson’s first and second elections. Hard money was the cornerstone of Grover Cleveland’s electoral campaigns. William McKinley moderated from the pietist inflationism his party once stood behind to win the election of 1896. Average Americans despised inflationism and the boom-bust cycle it would eventually cause. 

Central banks today do these very same things. The Federal Reserve, as just one example, has overseen a tripling of the money supply (measured as M2) since 2008 when it began to buy toxic assets and even more government bonds by “printing money” (the process is slightly more complex, but the phrase is largely correct). Americans especially are expected to stomach two percent or higher inflation as a part of a somehow healthy economy—because surely the sign of a healthy economy is an increasing price level!

The government, run by politicians and their appointees, operates under an environment of inflationism. It issues debt that is purchased with newly created money by the Federal Reserve to enable the worst of its excesses—the worst of the worst being U.S. foreign policy that can hardly be considered a Just War.

In nearly every war prior to Central Banking, countries would be forced to sue for peace due to an inability to raise tax revenue to finance their conflict. By suspending specie payments (the ability to convert banknotes into gold), countries could inflate their money supply and supply the war far longer than they could have before. Nobody says it quite as succinctly as Ron Paul: “It is no coincidence that the century of total war coincided with the century of central banking.” Nobody says it quite as succinctly as Ron Paul: “It is no coincidence that the century of total war coincided with the century of central banking.”Tweet This

Inflationism also has societal impacts. Inflationism brings real goods and services from the late receivers of new money to those right near the spigot. Money is not some neutral coefficient that makes numbers go up. Money is used in exchange. Real goods change hands and prices rise and fall unevenly. 

When new money is created, those who are nearest to the new money are able to spend it first on the goods and services they enjoy. Prices begin to rise as this new money filters down from person to person and firm to firm. Real goods and services flow opposite the dispersion of money. 

The Church has continued to stress the importance of localized property ownership. But when certain government-connected businesses and individuals have access first to new money, they purchase property for themselves and consolidate. Firms closely connected with the government take everything because they are able to be faster than price changes. 

This alienation from business and property causes distress. Robert Nisbet’s The Quest for Community documents how the increased consolidation of the state and economy has alienated people from their communities. They become pure political units and all societal relations outside of the conquering political sphere are destroyed. 

Welfare is financed through inflationism and debt—two sides of the same coin—and removes the need to rely on one’s community or the Church for help. This practical reliance helps create the solidarity that strengthens community. Consolidation of state power through inflationism destroys the community and the Church. 

Inflationism also destroys saving. Humans save because of uncertainty in the future—because we do not know how and what we will consume or produce in the future. Humans hold on to cash and savings as a form of insurance against the future. Inflationism, even in small amounts, eats away at savings. 

It stops potential business owners from accumulating capital goods and starting new businesses. It keeps consumers consuming because their purchasing power is disappearing. They must find uses for their money before its value slips away. Perhaps at even smaller rates of inflation it becomes more insidious, as the reality of a totally collapsing economy is not present and so less “essential” goods are purchased quickly. At least with proper hyperinflation survival is paramount, so you purchase whatever food you can find rather than taking your excess cash to spend on hedonistic self-pleasure.

One could go on and discuss how inflationism encourages debt and then, subsequently, financialization, but the point has been made. 

Every Catholic should look at inflationism and central banking as a moral evil and an ill on society. Not only could inflationism as a weapon of statecraft be seen as sinful, but its effects are destructive beyond all possible comprehension. Basic principles of solidarity, subsidiarity, and localism are hollowed out and cast down at the foot of the altar of central banking. Central banking enables mass fraud and the destruction of the human personality. 

Catholics, as an electoral group in the United States and everywhere, should adamantly oppose inflationism as a political maneuver. If, as Catholics, we view community and civilization as good things, we must oppose inflationism. Societies have survived a lot, but no society has survived chronic currency debasement.