Eugene Cho

faith and money [2]: what is money?

The basic lesson that all people need to learn about money is that it is a tool as a medium of exchange.  Money has a purpose in our society.  In this post, I want to simply cut and paste a good defintion of money that explains what it is.  In the next post, I’ll expand on the idea that money is neutral in the eyes of Scripture.  It is neither inherently evil or good.  Simply, money is what it is.  But because it is neutral, one must choose how to use money.

And while some Christians are misled in thinking that money is the root of all evil, the Bible and Jesus makes a distinction between money [tool] and mammon [lust].  Money as a tool, per se, isn’t criticized.   In a later post, I’ll share [in my opinion] how much should be used for as Christians without falling into the temptation of mammon.  So, what is money?

Part I: Where is Your Treasure?

What is Money? [Investopedia]

Before the development of a medium of exchange, people would barter to obtain the goods and services they needed. This is basically how it worked: two individuals each possessing a commodity the other wanted or needed would enter into an agreement to trade their goods.

This early form of barter, however, does not provide the transferability and divisibility that makes trading efficient. For instance, if you have cows but need bananas, you must find someone who not only has bananas but also the desire for meat. What if you find someone who has the need for meat but no bananas and can only offer you bunnies? To get your meat, he or she must find someone who has bananas and wants bunnies …

The lack of transferability of bartering for goods, as you can see, is tiring, confusing and inefficient. But that is not where the problems end: even if you find someone with whom to trade meat for bananas, you may not think a bunch of them is worth a whole cow. You would then have to devise a way to divide your cow (a messy business) and determine how many bananas you are willing to take for certain parts of your cow.

To solve these problems came commodity money, which is a kind of currency based on the value of an underlying commodity. Colonialists, for example, used beaver pelts and dried corn as currency for transactions. These kinds of commodities were chosen for a number of reasons. They were widely desired and therefore valuable, but they were also durable, portable and easily stored.

Another example of commodity money is the U.S. currency before 1971, which was backed by gold. Foreign governments were able to take their U.S. currency and exchange it for gold with the U.S. Federal Reserve. If we think about this relationship between money and gold, we can gain some insight into how money gains its value: like the beaver pelts and dried corn, gold is valuable purely because people want it.

It is not necessarily useful – after all, you can’t eat it, and it won’t keep you warm at night, but the majority of people think it is beautiful, and they know others think it is beautiful. Gold is something you can safely believe is valuable. Before 1971, gold therefore served as a physical token of what is valuable based on people’s perception.

Impressions Create Everything
The second type of money is fiat money, which does away with the need to represent a physical commodity and takes on its worth the same way gold did: by means of people’s perception and faith. Fiat money was introduced because gold is a scarce resource and economies growing quickly couldn’t always mine enough gold to back their money requirement. For a booming economy, the need for gold to give money value is extremely inefficient, especially when, as we already established, value is really created through people’s perception.

Fiat money, then becomes the token of people’s apprehension of worth – the basis for why money is created. An economy that is growing is apparently doing a good job of producing other things that are valuable to itself and to other economies. Generally, the stronger the economy, the stronger its money will be perceived (and sought after) and vice versa. But, remember, this perception, although abstract, must somehow be backed by how well the economy can produce concrete things and services that people want.

That is why simply printing new money will not create wealth for a country. Money is created by a kind of a perpetual interaction between concrete things, our intangible desire for them, and our abstract faith in what has value: money is valuable because we want it, but we want it only because it can get us a desired product or service.

How Is It Measured?
Sure, money is the $10 bill you lent to your friend the other day and don’t expect back anytime soon. But exactly how much money is out there and what forms does it take? Economists and investors ask this question everyday to see whether there is inflation or deflation. To make money more discernible for measurement purposes, they have separated it into three categories:

M1 – This category of money includes all physical denominations of coins and currency, demand deposits, which are checking accounts and NOW accounts, and travelers’ checks. This category of money is the narrowest of the three and can be better visualized as the money used to make payments.

M2 – With broader criteria, this category adds all the money found in M1 to all time-related deposits, savings deposits, and non-institutional money-market funds. This category represents money that can be readily transferred into cash.

M3 – The broadest class of money, M3 combines all money found in the M2 definition and adds to it all large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets.

By adding these three categories together, we arrive at a country’s money supply, or total amount of money within an economy.

How Money Is Created
Now that we’ve discussed why and how money, a representation of perceived value, is created in the economy, we need to touch on how the central bank (the Federal Reserve in the U.S.) can manipulate the money supply.

Among other things, a central bank has the ability to influence the level of a country’s money supply . Let’s look at a simplified example of how this is done. If it wants to increase the amount of money in circulation, the central bank can, of course, simply print it, but as we learned, the physical bills are only a small part of the money supply.

Another way for the central bank to increase the money supply is to buy government fixed-income securities in the market. When the central bank buys these government securities, it puts money in the hands of the public. How does a central bank such as the Federal Reserve pay for this? As strange as it sounds, they simply create the money out of thin air and transfer it to those people selling the securities! To shrink the money supply, the central bank does the opposite and sells government securities. The money with which the buyer pays the central bank is essentially taken out of circulation. Keep in mind that we are generalizing in this example to keep things simple. (For more information, see the Federal (the Fed) Reserve Tutorial.)

Conclusion
Remember, as long as people have faith in the currency, a central bank can issue more of it. But if the Fed issues too much money, the value will go down, as with anything that has a higher supply than demand. So even though technically it can create money “out of thin air,” the central bank cannot simply print money as it wants. [Investopedia]

Filed under: religion

4 Responses

  1. Ron says:

    The Federal Reserve is Guilty of Helping Create the Global Financial Meltdown

    Many investors and concerned citizens around the world are showing their outrage at what the Federal Reserve has done to the American economy with their easy money policies which caused the credit & real estate bubble and subsequent global financial meltdown.

    Join the thousands who are signing & commenting on the Abolish the Federal Reserve Petition at http://www.petitiononline.com/fed/petition.html

  2. […] Eugene Cho discussed today the need to learn to treat money as nothing more than a tool. Eugene’s thoughts and mine on this issue aren’t completely congruent but his thoughts are no less worth consideration. […]

  3. […] series on Faith and Money.  You can the previous entries here:  [1] Where is Your Treasure, [2] What is Money, and [3] Control or […]

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One Day’s Wages

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Grateful. Still reflecting on the letters that I've received from classmates and students that have come before me and after me. Never imagined all that God would have in store for me. Lots of humbling things but in the midst of them, there were literally thousands upon thousands of daily decisions and choices to be faithful. That's what matters. Seen or unseen. Noticed or unnoticed. You do your best and sometimes you stumble and fumble along but nevertheless, seeking to be faithful.

Also, you know you're getting old when your school honors you with a Distinguished Alumni Award. Lol. 47 is the new 27. Or something like that. Here's to the next 47. In our culture, we can be so obsessed with the "spectacular" or "glamorous." The Church often engagws in thia language and paradigm...but what if God has called many of us to small, ordinary things?

Will we still be faithful?
Will we still go about such things with great love and joy?

I recently came across this picture taken by @mattylew, one of our church staff...and I started tearing up: This is my mother; in her 70s; with realities of some disabilities that make it difficult for her to stand up and sit down...but here she is on her knees and prostate in prayer. She doesn't have any social media accounts, barely knows how to use her smartphone, doesn't have a platform, hasn't written a book, doesn't have any titles in our church, isn't listed as a leader or an expert or a consultant or a guru. But she simply seeks to do her best - by God's grace - to be faithful to God. She prays for hours every day inteceding for our family, our church, and the larger world.

Even if we're not noticed or celebrated or elevated...let's be faithful. Our greatest calling as followers of Christ is to be faithful. Not spectacular. Not glamorous. Not popular. Not relevant. And not even successful in the eyes of the world.

Be faithful. Amen. #notetoself (and maybe helpful for someone else)

At times, we have to say ‘NO’ to good things to say ‘YES’ to the most important things.

We can't do it all.
Pray and choose wisely.
Then invest deeply. May our compassion not just be limited to the West or to those that look like us. Lifting up the people of Iraq, Iran, and Kurdistan in prayer after the 7.3 earthquake - including the many new friends I met on a recent trip to Iraq.

The death toll rises to over 400 and over 7,000 injured in multiple cities and hundreds of villages along the Western border with Iraq.

Lord, in your mercy... We are reminded again and again...that we are Resurrection People living in a Dark Friday world.

It's been a tough, emotional, and painful week - especially as we lament the horrible tragedy of the church shootings at Sutherland Springs. In the midst of this lament, I've been carried by the hope, beauty, and promise of our baptisms last Sunday and the raw and honest testimonies of God's mercy, love, and grace.

Indeed, God is not yet done. May we take heart for Christ has overcome the world. "Without genuine relationships with the poor, we rob them of their dignity and they become mere projects. And God did not intend for anyone to become our projects." Grateful this quote from my book, Overrated, is resonating with so many folks - individuals and  NGOs. / design by @preemptivelove

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