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

My Instagram

Father, please bless and protect these Iraqi and Syrian "refugee" children that have already endured so much. Protect their hearts and mind from unfathomable trauma. Plant seeds of hope and vision in their lives. And as we pray for them, teach us how to advocate for them. Amen. "We don't call them refugees. We call them relatives. We don't call them camps but centers. Dignity is so important." -  local Iraqi priest whose church has welcomed many "relatives" to their church's property

It's always a privilege to be invited into peoples' home for tea - even if it's a temporary tent. This is an extended Yezidi family that fled the Mosul, Iraq area because of ISIS. It's indeed true that Christians were targeted by ISIS and thatbstory muat be shared but other minority groups like the Yezidis were also targeted. Some of their heartbreaking stories included the kidnapping of their sister. They shared that their father passed away shortly of a "broken heart." The conversation was emotional but afterwards, we asked each other for permission to take photos. Once the selfies came out, the real smiles came out.

So friends: Pray for Iraq. Pray for the persecuted Church. Pray for Christians, minority groups like the Yezidis who fear they will e completely wiped out in the Middle East,, and Muslims alike who are all suffering under ISIS. Friends: I'm traveling in the Middle East this week - Iraq, Lebanon, and Jordan. (Make sure you follow my pics/stories on IG stories). Specifically, I'm here representing @onedayswages to meet, learn, and listen to pastors, local leaders, NGOs, and of course directly from refugees from within these countries - including many from Syria.

For security purposes, I haven't been able to share at all but I'm now able to start sharing some photos and stories. For now, I'll be sharing numerous photos through my IG stories and will be sharing some longer written pieces in couple months when ODW launches another wave of partnerships to come alongside refugees in these areas. Four of us are traveling together also for the purpose of creating a short documentary that we hope to release early next year.

While I'm on my church sabbatical, it's truly a privilege to be able to come to these countries and to meet local pastors and indigenous leaders that tirelessly pursue peace and justice, and to hear directly from refugees. I've read so many various articles and pieces over the years and I thought I was prepared but it has been jarring, heartbreaking,  and gut wrenching. In the midst of such chaos, there's hope but there's also a lot of questions, too.

I hope you follow along as I share photos, stories, and help release this mini-documentary. Please tag friends that might be interested.

Please pray for safety, for empathy, for humility and integrity, for divine meetings. Pray that we listen well; To be present and not just be a consumer of these vulnerable stories. That's my biggest prayer.

Special thanks to @worldvisionusa and @worldrelief for hosting us on this journey. 9/11
Never forget.
And never stop working for peace.

Today, I had some gut wrenching and heart breaking conversations about war, violence, and peacemaking. Mostly, I listened. Never in my wildest imagination did I envision having these conversations on 9/11 of all days. I wish I could share more now but I hope to later after I process them for a few days.

But indeed: Never forget.
And never stop working for peace.
May it be so. Amen. Mount Rainier is simply epic. There's nothing like flying in and out of Seattle.

#mountrainier
#seattle
#northwestisbest Took a train to Busan. Did not encounter any zombies but I was ready just in case.

Busan. First visit to this city (couple weeks ago) and was blown away by its beauty. Also, shocked that it has become the fifth largest containment port city in the world. That's a lot of import and export.

#MyAttemptToBeTheBestSmartphonePhotographer 
#Pusan #SouthKorea

my tweets

  • Every convo with Iraqi/Syrian refugees included: 1 Have tea with us 2 We want peace 3 We hate ISIS 4 We want to go home 5 Don't forget us || 6 hours ago
  • Back safely from Iraq, Lebanon, Jordan to assess @OneDaysWages' partnerships & to film mini-documentary on refugee crisis. So many emotions. || 6 hours ago
  • Pray for Mexico. For those mourning loved ones. For those fighting for life - even under rubbles. For rescue workers. Lord, in your mercy. || 6 hours ago
  • Don't underestimate what God can do through you. God has a very long history of using foolish and broken people for His purposes and glory. || 2 days ago
  • Father, bless these Iraqi and Syrian refugee children that have already endured so much. As we pray, teach us how t… twitter.com/i/web/status/9… || 4 days ago
  • Pray for Iraq. Pray for persecuted Church, minority groups (Yezidis) and Muslims alike who are suffering under ISIS: instagram.com/p/BZF2j6Ngrna/ || 4 days ago