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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Today, Minhee and I dropped off our eldest child at her college. We have been thinking and praying about this day for many years. On some days, we hoped it would never come. On other days, we couldn't wait for it to come. On some days, we prayed for time to stop and other days, we prayed with anticipation. 
After an entire summer of laughing it off, it hit us...hard...this week. Seeing all of her stuff laid out on the basement floor was the catalyst to a load of emotions.

After unloading the car and taking her stuff to her new home for this year and mindful that she might never live with us again; helping sort out her stuff, saying hello to her roommates...I wasn't sure what to do or say.

A flood of thoughts rushed my mind.

Is she ready?
Have we done enough?
Have we taught her enough? 
What if this? What if that?

And so we shared what we have shared with her the moment she began to understand words: "Remember who you are. Remember WHO you belong to. Remember what you're about. God loves you so much. Please hold God's Word and His promises close and dear to your heart. We love you so much and we are so proud of you." And with that, we said goodbye. Even if she may not be thousands of miles away, this is a new chapter for her and even for us. I kept it composed. Her roommate was staring at me. I didn't want to be that father. I have street cred to uphold. Another final hug. 
And I came home.
And I wept.
Forget my street cred.
I miss her. I love her.
She will always be my little baby.

I'm no parenting guru. I just laughed as I wrote that line. No, I'm stumbling and bumbling along but I'd love to share an ephiphany I learned not that long ago. Coming to this realization was incredibly painful but simultaneously, liberating. To be honest, it was the ultimate game-changer in my understanding as a parent seeking after the heart of God.

While there are many methods, tools, philosophies, and biblical principles to parenting, there is – in my opinion – only one purpose or destination.

Our purpose as parents is to eventually…release them. Send forth. For His glory. Met a friend and fellow pastor who I haven't seen in over 20 years. In him, I saw a glimpse of my future. While only 10 years older, his kids are married and he's now a grandfather of 3. His love for his wife and family were so evident and his passion for the Gospel has not wavered. It was so good to see someone a bit older still passionately serving the Lord with such joy and faithfulness. Lord, help me to keep running the race for your Glory. Happy wife.
Happy life. - Eugenius 3:16

I still remember that time, many years ago, when Minhee was pregnant with our first child. She had left her family and friends in Korea just two years before. Her morning sickness was horrible and when she finally had an appetite, she craved her favorite Korean food from certain restaurants in her neighborhood in Seoul, Korea. I had no way of getting that food from those restaurants so I actually said, "How about a Whopper? Big Mac?" Sorry honey. Eat away. You deserve it. I don't care if it sounds mushy but sunsets are one of my love languages. Seoul, Korea was amazing but WOW...what a breathtaking welcome back sunset by Seattle. Not ready to let go of summer. Seattle. 7:00pm. Desperately holding on to summer. #goldengardenpark #nofilter Happy Birthday, Minhee! I'm so grateful for you. You radiate faith, hope, and love.  No...you don't complete me. That would be silly and simply humanly impossible but you keep pointing me and our family to Christ who informs and transforms our lives, marriage, family, and ministry. Thanks for being so faithful. I love you so much. (* And what a gift to be in Korea together.)

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