It is ten years since the financial crisis of 2008 and, like many others in the conservative blogosphere, I find myself wondering if we have learnt any lessons from it. Given that the nations of the world have not re-instated the gold standard, ended the rule of the central banks, collapsed the Euro, or established 100%-reserve banking for deposit accounts, I am very much afraid that it is only a matter of time before another crisis hits. There are several concerning factors that lead me to this conclusion.

Firstly, there is the simple fact that some prominent figures, with individual reasoning of their own, believe that another crisis is coming.

http://www.dailymail.co.uk/news/article-5614949/Bill-Gates-warns-financial-crisis-coming-like-2008-Great-Recession.html

https://www.weforum.org/agenda/2015/10/qa-is-another-financial-crisis-on-the-way/

http://uk.businessinsider.com/bank-of-england-governor-mervyn-king-another-crisis-is-certain-2016-2

Such figures do not usually make these statements lightly: their arguments and evidence ought to be considered.

Secondly, there is the argument from sustainable growth. If sustainable growth is possible only on the basis of savings, and not on the basis of unsupported credit, then an expansion of unsupported credit should be a cause of concern. As described in the post on the two primary types of banking, it is possible, though not ethical, to use deposit funds to support credit arrangements. When banks do this, they effectively create credit out of nothing, because the deposit funds cannot simultaneously be available for withdrawal by the depositor and be under the use of a third party borrower. When all of the depositors come at once to withdraw their funds, only to find that these funds have already been given to borrowers who have not yet repaid them, the bank collapses. When this happens across multiple banks at the same time, the banking sector as a whole is badly affected. When a country is heavily reliant on the banking sector to provide jobs and credit and handle transactions, the collapse of several banks becomes problematic for the country as a whole.

Thirdly, there is the problem of peak oil, which could be exacerbated by wars in the Middle East (e.g. an Iranian invasion of Iraq, Syria, Turkey, Lebanon, and Saudi Arabia). If we have passed the point of peak oil, allowing that demand stays the same (it, could of course, go up), the price of oil will increase dramatically. This will be worsened by increased costs involved in extracting harder to reach deposits. Oil is a crucial commodity for the world economy: although alternatives are being developed and slowly relied upon, we have not yet reached the point where we can cast oil aside. The period in which we find ourselves at the moment makes us vulnerable: a prolonged crisis similar to that of the 1970s would require individuals, businesses, and governments to change their behaviour.

http://uk.businessinsider.com/the-future-of-oil-supply-and-demand-2016-9

View story at Medium.com

Finally, there is the overall trend in gold prices. Following the 2008 crisis, the price of gold went up markedly. People buy gold in crises because it holds its value well. They do this with several thoughts in mind. There is the hope that they will be able to use some of the stockpile to buy commodities and other resources in the event of a currency collapse. The rest is retained in order to open new bank accounts in the event of a bank collapse and/or to obtain new currency at a time when a stable national currency is reintroduced. Fearing a number of possible scenarios, a number of people invested in gold following the crisis, and it reached its peak in 2011. Since then, in the thought that we are gradually recovering, the price has come down – but it has not returned to 2008 levels. It may yet go down if we are genuinely on the road to recovery, but the fact that it has not suggests there are still lingering fears in the market. These are fuelled by the factors above and, in Europe, concerns that the root causes of the Euro crisis have not really been fixed. If there is a sustained upward trend in gold prices, that could be a bad sign.

https://www.gold.co.uk/gold-price/10year/ounces/USD/

This post is not meant to depress, and I stress that I am not a detailed prognosticator. I do not KNOW that a crash is coming, much less when and on what particular trigger, but I do honestly believe that one is not far off. Nevertheless, these factors should make us all think long and hard about the precarious state of Western economies and what we really value: the value that many of us place on liberty will make us willing to experience short-term hardship for the sake of preserving it. In my own case, I did not vote for Brexit in the belief that we would immediately become prosperous as a result of it – far from it. But I hoped that we might gain the liberty we needed to put ourselves back on a firm footing. Only time will tell if this or successive governments in the UK learn the lessons of the past.

DISCLAIMER: the following is a discussion of principles of banking and Roman jurisprudence. The author is not a qualified lawyer. This post is not intended or offered as a guide to banking or investment at the time of writing or in the future. For current legal advice on the status of different kinds of banking, please consult a qualified lawyer.

***

I am currently reading a sample of Money, Bank Credit, and Economic Cycles, by Jesus Huerta de Soto, a professor of Applied Economics at King Juan Carlos University, and a Senior Fellow of the Mises Institute. The book is fascinating, exploring the legal, moral, and economic understanding of different kinds of banking through the ages, beginning with an examination of Roman jurisprudence (which forms the basis of the civil law systems of Western Europe and South America). This book is a critique of fractional reserve banking from an Austrian economic point of view.

He begins by making a distinction between deposit banking and loan banking. In deposit banking, which can be split into two subcategories, regular and irregular, the depositary agrees to protect the deposit of the depositor, guaranteeing its availability to the depositor at any time upon request. In the regular version, a specific item is left (e.g. a painting), which can be reclaimed later. In the irregular version, fungible goods (e.g. money) are left, and the depositary guarantees to return, upon request, goods in the same amount of the same quality and value (but not the specific coins originally handed over), referred to in Latin as the tantundem qualitatis et bonitatis. The depositary, in running a business, will sometimes charge for this security and availability service. He must always keep the same amount of the given good as originally deposited, otherwise he will have be found to have misappropriated it. In some law systems, not only would such action give rise to criminal liability, but it would also create a right to interest on the part of the depositor, to compensate him for the time in which he did not have access to the full amount of his deposit.

Loan banking, on the other hand, works quite differently. In this instance, the lender agrees to forego access to an amount of money, for example, for a set term, on the understanding that he will receive the same amount back with additional interest at the end of the term. If the banker fails to meet these terms, he will be in breach of contract (and may be liable for misrepresentation, if he never had the intention of honouring his agreement). The speculative nature of this kind of banking entails a greater kind of risk, since the banker will use the money to generate the both or either capital or income in order to yield interest to the lender. Accordingly, in Roman jurisprudence, in the event of insolvency, depositors ranked higher in priority than creditors, since creditors were deemed to have accepted the risk that their investments might prove fruitless.

There are a number of dangers inherent in the existence of these two systems side-by-side.  Firstly, there is the danger that a bank patron will choose the wrong service for his needs, either through ignorance on his part or as the result of miscommunication or deception. A person who thought he was a depositor, when in law he was a creditor, would be very angry in the event of his bank’s insolvency. Secondly, there is the danger that an unscrupulous banker will appropriate money from the deposit for use as a loan in the belief that he will have generated a return to pay back the loss before the depositor asks for his money back.

The latter danger is the essence of fractional reserve banking. A bank that operates in this manner gambles on the probability that at any one time, there will not be a demand for withdrawals that is greater than the sums held on reserve. Such a practice would be considered unethical in Roman jurisprudence, but is mainstream in Western banking today. The problem occurs when just such an unlikely scenario occurs, triggered by fears of bad investments in the commercial world or concerns about mismanagement by company officers or general adverse economic conditions.

In such an event, where a bank cannot meet the demands of its clients, it must be declared insolvent, unless it can be rescued. If the bank is allowed to go insolvent, this will be a great pain to the natural and non-natural persons who have left money with it. There will be some ripples from this as the missing funds will mean that some contracts and plans dependent on them cannot proceed. However, the overall effect will be contained.

How might the bank be “rescued”? Private individuals could try to make up the losses – but few would be willing to do this, and those who did will not be remunerated if their contributions are gifts. If they are loans, there is the possibility that the bank will not be able to repay them. If it does, this may come at someone else’s expense.

If the government decides to shore up the bank, it will have to find money of its own to do this: it can print more money at the central bank; it can take out a loan; it can raise taxes. If the government prints more money, it is likely that this will cause inflation because, chances are, demand for money will not increase proportionately. Inflation decreases the spending power of the national currency, so this measure effectively works out as a tax on citizens. If it also undermines international confidence in the country, this can have an impact on foreign investment.

If the government raises taxes, this imposes an additional burden on taxpayers but also creates further problems. It encourages other banks to behave as recklessly as the example above in the belief that the government will rescue them too. Furthermore, it creates ill feeling among the citizenry, because many will ask why they should have to pay for the misfeasance of others. Thirdly, if corporation tax is increased, this will encourage many businesses to move to countries with a lower rate.

Lastly, there is the loan option. This has the same problems as the tax example above, only the effects are deferred. The loan will eventually have to be repaid, especially if it is owed to a foreign creditor. The more loans the state has to take out, the greater the chance of a fall in confidence, which could encourage people to sell their stockpiles of that nation’s currency, decreasing its purchasing power on the foreign markets.

Given all of the above, one can understand why many would prefer for there to be a clear demarcation between deposit accounts and loan accounts in banks. A bank should maintain a 100% reserve at all times for its deposit accounts and charge a fee for its services (safeguarding, counting, paying bills), since it is doing this as a business. The more people who use the bank, the lower the fee will be, because the bank can make economies of scale. When someone opens an account, they should always have an adviser who explains in simple terms exactly what their options are and what the consequences of these options will be in the event of insolvency. Loan accounts could still be permitted under this scheme, because they are effectively investments. Provided that the risks are explained to the customer before he contracts with the bank, there will be no misrepresentation and he will be deemed to have accepted the risk. It will be fair to let him lose out by not having the government refund him if the investment proves bad. What should not happen, as has in the past, is the mixing of funds from loan and deposit accounts.

This concludes our series on the title, Son of God. Understandably, it has not provoked the kind of discussion that political, economic, social, and ethical posts tend to on this site. However, I hope it has been of some benefit to our readers, and encouraged people to think a little more deeply about the nuances of this term as applied to Jesus in the New Testament and as used in Intertestamental literature.

The King of Israel

And when thy days be fulfilled, and thou shalt sleep with thy fathers, I will set up thy seed after thee, which shall proceed out of thy bowels, and I will establish his kingdom. He shall build an house for my name, and I will stablish the throne of his kingdom for ever. I will be his father, and he shall be my son. If he commit iniquity, I will chasten him with the rod of men, and with the stripes of the children of men: But my mercy shall not depart away from him, as I took it from Saul, whom I put away before thee. And thine house and thy kingdom shall be established for ever before thee: thy throne shall be established for ever.

-2 Samuel 7:12-16

He shall be great, and shall be called the Son of the Highest: and the Lord God shall give unto him the throne of his father David: And he shall reign over the house of Jacob for ever; and of his kingdom there shall be no end.

-Luke 1:32-33

In many ancient cultures, the king was held to be the son of the patron god of the state. In Egypt, the Pharaoh was the embodiment of the god Horus, who was the son of Osiris and Isis. Some Phoenician and Canaanite states appear to have viewed their ruler as a son of Baal. In many cases, descent was ancestral. Thus many of the Greek and Roman rulers and noble families claimed descent from a god and a hero who was a son of a god. For example, it was common to claim some form of descent from Heracles, the son of Zeus.

These claims allowed kings to inspire awe in their subjects, and to argue that they ruled in the name of their god, attributing holiness, righteousness, and wisdom to their reigns. In Israel, Nathan’s prophecy to David, cited above, and the offices of prophet and priest, put a brake on heedless extravagance and arrogance. The kings of Judah were not literal descendants of YHWH, and their actions could be rebuked by reference to oracles from YHWH or unfavourable comparison with the Torah.

Following the Babylonian Exile, the descendants of David lost much of their political power. Zerubbabel was a governor of Yehud, but it is not clear that all subsequent governors were descendants of David. The Hasmonaeans, who later claimed the title of king, were Levites and Aaronides, and the Herodian dynasty was of Idumaean (Edomite) descent. Thus hopes of a new David clustered around the concept of the Messiah, a special figure who, like David, would be a man after YHWH’s own heart – holy, righteous, wise, strong, and compassionate.

When Jesus the Son of God and Son of David came, He showed the people what a true Davidic ruler could be like and as the incarnation of the Second YHWH, was true link between the people and their God, combining the offices of prophet, priest, and king. He was a second David, and a second Solomon: David conquered the powers, and Solomon ruled in the golden age. The Millennium, conceived as a kind of Sabbath-like and Edenic rule, is an echo of the description of the time of Solomon. But peace and order must be fought for:  as the ancient kings in their religious festivals re-enacted the stories of their gods fighting the powers of death and chaos (chaoskampf), so Jesus actually fought the powers of darkness and defeated death – the ultimate warrior and shepherd king.

“Are you the King of the Jews?”

“That is how you would say it, yes.”

-Matthew 27:11

Israel

Israel is sometimes called God’s son in the Bible (and God’s servant). Applying the Deuteronomy 32 worldview, in which the nations were divided up among the sons of God, the relationship can be understood as fatherly supervision: the sons of God were supposed to be fathers to their nations, and YHWH was Father to Israel. The concept goes beyond that. YHWH did not simply appropriate a nation “off-the-shelf”: He miraculously caused Sarah, who was barren, to conceive Isaac, the father of Jacob, and He chose Jacob over Esau, renaming Jacob following his night of wrestling with the Angel of the YHWH. God caused Israel to be and called Israel out of Egypt, which Matthew applied to Jesus.

When Israel was a child, then I loved him, and called my son out of Egypt. As they called them, so they went from them: they sacrificed unto Baalim, and burned incense to graven images.

-Hosea 11:1-2

When he arose, he took the young child and his mother by night, and departed into Egypt: and was there until the death of Herod: that it might be fulfilled which was spoken of the Lord by the prophet, saying, Out of Egypt have I called my son.

-Matthew 2:14-15

Israel was called to a mission. It was not the will of God that the nations should be subject to the sons of God forever or that they should not know Him. They were punished for their rebellion at Babel, but God’s will was always to save as many as possible. Even in the Old Testament period, we have examples of Gentiles coming to faith in the God of Israel: Hagar; the Egyptians and foreigners who joined the Israelite Exodus; Rahab; Ruth; Uriah the Hittite; Naaman. Israel was to be an example to the nations:

Keep therefore and do them; for this is your wisdom and your understanding in the sight of the nations, which shall hear all these statutes, and say, Surely this great nation is a wise and understanding people.

-Deuteronomy 4:6

And to make thee high above all nations which he hath made, in praise, and in name, and in honour; and that thou mayest be an holy people unto the Lord thy God, as he hath spoken.

-Deuteronomy 26:19

All the ends of the world shall remember and turn unto the Lord: and all the kindreds of the nations shall worship before thee. For the kingdom is the Lord’s: and he is the governor among the nations.

-Psalm 22:27-28

God be merciful unto us, and bless us; and cause his face to shine upon us; Selah.
That thy way may be known upon earth, thy saving health among all nations.

-Psalm 67:1-2

I the LORD have called unto you in righteousness, and have taken hold of your hand, and submitted you as the people’s covenant, as a light unto the nations.

-Isaiah 42:6

And unto your light, nations shall walk, and kings unto the brightness of your rising.

-Isaiah 60:3

Israel in her own human strength had moments of meeting this mission. The Diaspora among the nations had the effect of spreading the word of YHWH. Thus in Acts, Jewish believers in Jesus come across Gentile worshippers of YHWH (“God-fearing Gentiles”) attached to synagogues and Jewish communities. But this work was incomplete. Jesus came to perfect the work of Israel in bringing the nations back to YHWH, and so He can be understood as Israel, God’s Son. Simeon the prophet, applied Isaiah’s language to the infant Jesus.

A light to lighten the Gentiles, and the glory of thy people Israel.

-Luke 2:32

Thus the writers of the New Testament applied Isaiah 53, the story of the Suffering Servant, to Jesus. It is a story Israel’s Messiah.

I do not know if any readers or contributors at AATW follow the YouTuber, Computing Forever. He is an ardent supporter of liberty, in particular freedom of speech, an citizen of the Republic of Ireland, who supported Brexit. He speaks intelligently, passionately, and eloquently, with a sharp sense of humour. Recently he uploaded a video on the need to protect our mental health in a time of darkness for those who love liberty.

Christians have been the canary in the coal mine when it comes to prosecution over freedom of speech. They were among the first to be hounded – now they are coming for secular conservatives, libertarians, and centrists. The war continues apace.

In my own recent economic reading (not sure if I will add to the economics series here, I started – still need to finish the Son of God series), I have been looking at the Austrian School, in particular the views of von Mises and Rothbard. When I look at the great gulf between what anarchocapitalists and libertarians advocate and our present state of affairs, I feel sad. This is made worse by concerns about another pending financial crash, which Bill Gates and Warren Buffet expect to occur within a few years (as do members of the Mises Institute): http://www.abc.net.au/news/2018-03-01/bill-gates-says-financial-crash-certainty-reddit-ama/9500326

In spiritual thoughts, I find myself excited by a spiritual sense that the LORD is going to do a great thing to revitalise the Christians of the West – but also a sense of trepidation at the cost of it:

For it is time for judgment to begin with God’s household; and if it begins with us, what will the outcome be for those who do not obey the gospel of God?

-1 Peter 4:17, NIV

I find myself in a mixture of views. On the one hand, there is an inescapable conviction within me, perhaps fed by a comment made by Chalcedon451 a while back, that Christ meant (among other things) that He would build His Church on Peter. On the other, there is something in my convictions that leads me to conclude that somewhere along the way, the Roman Catholic Church has stumbled. At the moment, I do not see how to reconcile these views, but what I would like is help in exploring the matter. Many doctrines and practices of Catholicism that I once abjured, I now see as compatible with the Gospel, and as historic developments of seeds in the Early Church period. But I have problems with accepting that some of these practices and beliefs should be mandatory. I have no intention of going to Orthodoxy. If I were to accept some formulation of Apostolic Succession, I would not concede of Peter as being simply a primus inter pares.

In the meantime, I bumble on, occupying myself with academic work and writing here. I appreciate the opportunity I am given to write both posts and comments here. Not least, I value the companionship this place offers in a world where my basic and fundamental views put me at odds with so many people.

Today in my reading on the BBC news website (I know, why would a free-market conservative read it?) I came across this article: France’s Macron urges EU to shun nationalism http://www.bbc.co.uk/news/world-europe-43794856. This opening line struck me:

“there seems to be a European civil war” between liberal democracy and rising authoritarianism.

One of the reasons why so many people across a range of age groups are deserting traditional media is that they are tired of simplifications and platitudes in reporting and analysis. Rather than ask a deeper philosophical question about the problems and limits of democracy, lines like the above have the potential to dupe gullible readers into thinking that all nationalists are fascists or that democracy is inherently good.

Christianity has a concept of sin – a concept that ought not to be controversial. Simple observation and a cursory glance at 20th century history tells us that people are capable of evil – great evil. Western civilisation’s traditional doctrine of the rule of law was developed in the knowledge that man has certain inalienable rights given to him by God. The state may not behave arbitrarily against these rights – and neither may the people. A war on man’s rights – albeit a democratic war – is a war against the Creator Himself.

When parts of Europe clamour to have our rights defended, not to see them destroyed by democracy or authoritarianism, this clamour is made in the name of liberty, a concept we used to hold dear. One man’s freedom can mean another man’s bondage, however. The arguments made by many that society should accord them more things, really mean taking something away from somebody else. Each suggestion of this should not be met with servile, spineless acquiescence, but a rational examination of the motivation and justification for such a suggestion.

In taking rights away from prisoners, society is acting to uphold justice and the doctrine of individual responsibility. Everything comes at a cost; all human action is transactional. When a criminal breaks the law, he pays the price. This is what the ancient Greek expression for retribution literally means: paying the price. The justification for imprisoning convicted offenders is vindication and deterrence: evil acts should be publicly denounced as evil and people should be discouraged from doing them.

In light of the above, we must ask ourselves whether the same reasoning applies to matters such as membership of the European Union or strict border controls or state provided education. To take the first example, membership of the European Union affords a nation certain liberties, but it also deprives that nation of liberties. The nation can no longer exercise control over its borders in respect of European Union citizens; the nation cannot impose tariffs on goods imported from the European Union or decide to impose no tariffs at all on goods imported from outside the European Union. Once a Directive has been passed, an EU nation has no discretion on whether to implement it or not. Matters decided by the Court of Justice of the European Union cannot be referred to independent arbitrators. The list goes on.

In considering these restrictions, we must ask whether they are justified, and, to the extent that they affect individual rights, whether the democratic majority has the authority to infringe on the rights of individual human beings where no blameworthy act has been committed. If one wishes to argue that the will of the majority is what makes a course of action right rather than a feature intrinsic to that action, we may ask why we should accept such an axiom. Intuition seems to tell us that things are objectively right or wrong, irrespective of the wishes of the majority. Maybe it’s time for the liberal intelligentsia to listen to the reasons given by people along the spectrum of nationalists rather than accuse them all of being authoritarians. Perhaps many  – or even most – of them simply wish to defend their rights against onslaught from radical democrats and tyrannical officials.

The question of the nature and origin of the state is foundational to ethical, political, and economic philosophy. In assessing what the state may and may not legitimately do, one must first determine what the state is. Such discussions form the content of tomes, so it lies beyond the scope of this post to cover the matter in depth; however, it is the author’s hope that it will predict fruitful discussion.

The concept of the state presupposes the concept of authority: the state issues laws, proclamations, standards, etc, and the people comply. Authority comes from somewhere: God, the people, somewhere. The Bible teaches us that all authority comes from God (Romans 13:1), but this does not entail that all authority is exercised justly. The Bible teaches firmly against rebellion (1 Samuel 15:23), but this may not necessarily be an absolute. A more nuanced view may be that rebellion should only ever be for a just cause and only ever as a last resort and always aged according to the “civilised” code of war.

In the light of the above, toleration of unjust conduct by the state must be distinguished from approval of such conduct. Leaving aside practicalities and cowardice, which are inferior concerns, a good man will not rebel against the state over a particular infraction because he will trust in the LORD to act as vindicator and appreciate that there is a scale of iniquities. Where an infraction is of a lessor kind, armed rebellion will be a disproportionate response because of the suffering it will cause as a consequence of anarchy. Smaller forms of protest will be more appropriate in such cases.

Considering now the nature of the state, an analogy that may prove useful in understanding it is the incorporated company. A non-natural legal person can do most things that a natural person can do, but it cannot do them of itself. It is a principal and its aims are carried out by agents. The corporation is created for a particular purposes (its “objects”) and it has a constitution that governs its conduct, what it can and cannot do (memorandum, articles of association, resolutions of the board of directors, shareholders’ resolutions).

Similarly, the state behaves as if it were a person and can do many of the things a natural person can do – but not all. It acts through agents (the executive, the legislature, the judiciary) and it is bound by the decisions of its agents (in a non-lawless society) until such decisions are revoked by a higher power (e.g. a court of first instance’s decision may be reversed by a court of appeal, but until that time, the court of first instance’s decision stands). The state will have some kind of constitution: it may be written, as is the case in the USA, or it may be unwritten, as is the case in the UK. Where decisions are made that contravene the constitution they may be challenged before a body that is competent to the judge the matter (e.g. the Supreme Court in the USA and the High Court in the UK).

In the old days, before the Companies Act 2006, the objects of a company acted to some extent like a straightjacket, confining the company to particular kinds of business. If the directors or shareholders wanted to expand into a business that did not fall within the list of approved objects, it was necessary to formally amend the company’s constitution. Reflecting on this, we might ask whether some of the things that the state does today, which most people take for granted, legitimately fall within its objects. If such things do not, and never could because of some fundamental philosophical principle, then a reforming force should remove such matters from the state’s remit.

This is where issues surrounding free will, consent, tyranny, and purpose come in. The fact that God allows us to autonomously make decisions and feel the consequences of them does not entail that all of those decisions are good. In English law, directors of companies have fiduciary duties towards their companies: they must act in loyalty and good faith towards their companies, seeking its benefit.

172
Duty to promote the success of the company
(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.

-Companies Act 2006, s170(1), via http://www.legislation.gov.uk

Similarly, the agents of the state should act in good faith towards the state, which, in a sense, is the people of the nation. In considering policies, they ought to think about the long-term benefits and costs, not only the short term. As a final thought, consider this in application to the question of money supply. If the state increases the money supply, but the demand for money stays the same, the value of the individual monetary unit will decrease. This will be a disbenefit to the people in the long-term. Would it not be better to avoid this altogether?