Sometimes I feel self-conscious when I say I'm an economics major because I don't really understand the economy. When I say this to people, they reassure me that no one does. Nonetheless, I've been learning more about the economy recently especially with all the crazy stuff happening in the financial world. Today I heard Ravi Zacharias quote something which was really transformative for me in the way I see finances and faith, and I'll share my thoughts with you guys about that.
To begin with, the oils that keep the engine of this economy running are cash and credit. You know what cash is; quarters, nickels, dimes, dollar bills. You can exchange dollar bills for goods, such as turkey or a shiny new car. These bills don't really have any value in themselves, but people like them because of what they can get in exchange for them. There was a big debate a long time ago about having money backed by silver or gold, meaning that you could exchange bills for these precious metals if you wanted, which would give these paper bills solid value. As it is now, they're not backed by anything.
These paper bills are kinda like poker chips. If we were to walk to a poker table and wanted to play, we'd have to pay some money to get some blue and red chips to play with. At the table, we'd gamble using these blue and red chips, and once the game is over, we'd exchange these poker chips for our money again. It's the same kind of deal with these paper bills. They're not really worth anything outside of this game we're playing, but they can be exchanged for things we want, so that's why we want them.
Next, there's credit. In college (and now) I would try not to spend much money. One way I thought I could limit my spending was to carry less cash with me, because if I carried less cash, I'd be less tempted to spend. The problem was that my friends would often go out to eat, meaning that my friends would often have to end up spotting me. The bill would come around and they'd pay for my meal, and I'd pay them back once I got money from the ATM. Credit cards are kinda like that. The credit card company will spot you money for a month up to a certain amount, and at the end of the month, you get a credit card bill. You have a month to pay the credit card bill; you can pay the full amount, in which case (for the credit card I have) you'd pay no interest. If you pay less than the full amount, you pay interest for what you still owe.
I was introduced to commodities this past summer by a friend. Some people are really worried about inflation, and there are some who are worried about hyperinflation. A rough definition of hyperinflation is when the money that you're using is worth more as toilet paper than money. How does that happen? Well, think about if a bunch of us were at a meal, and there was just one juicy piece of steak. We'd all really want it and might be willing to trade half a salad for some of that steak. But if there were a million steaks, then no one wants to trade anything for steak because everyone has so much of it anyway. Same thing for money. If the government keeps printing out exorbitant amounts of money, then the money we have becomes pretty much worthless.
That's why advocates of commodities such as gold and silver say people should buy gold and silver during times where the currency is unstable. Your dollar may lose its value, but gold has universal value whatever country you go to, and it'll have value even if the economy collapses. Even if it goes down in value it doesn't have the potential to plummet in value like the dollar does, so the incentive is usually more about security than profit. I started tracking the value of silver earlier this summer, and it was about $13 per ounce in July, and $12 per ounce in early August. Now it's about $16, so it seems like it would have been a good buy. Not sure where it's going to go from here, though.
One thing cash, credit, and commodities all have in common is that they all promise us things. Material possessions in the form of shiny new cars (even ones we can't afford), a comfortable life, a secure future. Maybe even love? The Beatles say "can't buy me love," but... it does at least seem that you can. We evaluate potential mates on a variety of levels like personality, maturity, physical appearance, and so on. More money means increased social status, and so while money might not help you get that particular girl, it probably will help you get a girl in general. I can get you these things, money says... a nice car, a secure future, and a pretty girl, I can get you all these things.
What I began to see more clearly today is that these are promises being made. Cash, credit, commodities promise to provide us with the things that make us happy, and we buy into that promise. If you really didn't trust the dollar bill, you'd put into Euros or Yen or Gold like my friend who got me interested in that stuff. But you do trust it enough, so you keep your money in dollar bills.
What the recent financial craziness has shown is that none of this 100% sound. Our currency may hyperinflate, leaving all our cash worthless. Our credit system basically exploded on us, which was the big cause of the recession. And gold... during the Great Depression, the government issued a recall on gold, saying that you had to turn in the gold you had. And if you're hiding your gold, well, that can always get stolen.
Nonetheless, our economy is running on these assumptions. We believe that it's likely enough that these things won't happen, so we keep living as if they won't. We save money in the belief that tomorrow I can bring that cash to the store and get food with it. I'm banking on the fact that these banks and financial institutions will made good on their promises and deliver. I'm trusting in the fact that all these people, all these institutions, will follow through with what they say. I'm putting trust in them.
The quote I heard Ravi Zacharias make today was "the whole world runs on the basis of faith," even the financial world. That statement is so true. I'm working in the field of construction management now, where the contract is king. A contract is basically an agreement between two parties where they agree to something, such as, I pay you this amount of money if you will do this for me. Without people agreeing to make contracts, no one would be able to do anything. I could go to a store and give them the money for a product, but they could just refuse to uphold their end of the deal. If no one believed the promises of another, the world would cease to function.
Mark Twain once said, "faith is believing what you know ain't so." He entirely misunderstands faith. Faith is simply putting your trust in something. When I decide to use a boat, it's entirely possible it'll start sinking. But I have reason to believe it won't, and I act on that reason. It's like I'm saying to the boat, I believe that you will keep me afloat. The question is really how trustworthy is the object of faith? The fact that there is faith involved does nothing to disqualify the object, or the promise.
I had some more thoughts in that same vein about faith, but they'll have to go unsaid for now. The last thing I'll share, though, is that shortly after thinking these things I read 1 Kings 17:3. It's a drought, and God tells Elijah "Leave here, turn eastward, and hide in the Kerith Ravine, east of the Jordan. You will drink from the brook, and I have ordered the ravens to feed you there." That's a pretty big promise. God is saying that in this drought he will command nature itself to provide for Elijah.
In the face of a promise like this, the question is can God make good on his promise? Can we take this promise to the bank and cash in on it? Exactly how reliable is God with things like this, can he do this, and if so, will he do it? In the Christianized way of saying it, do I have faith?
Yeah, I believe it. God's good for his word. If he promises something, he will follow through with it, and I can put money on that. Cash, credit, commodities, and every other earthly thing may fail me, but whether I'm in the middle of a drought or recession, God can command nature itself to provide for me. So if God, who is always able to deliver on his promises, and who always will deliver on his promises, says "and surely I am with you always, to the very end of the age," then I can have great confidence that His provisions for me will always be sufficient.
