10
DEBT-FREE LIVING Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law. For this, Thou shalt not commit adultery, Thou shalt not kill, Thou shalt not steal, Thou shalt not bear false witness, Thou shalt not covet; and if there be any other commandment, it is briefly comprehended in this saying, namely, Thou shalt love thy neighbour as thyself. Love worketh no ill to his neighbour: therefore love is the fulfilling of the law (Rom. 13:8-10).
The theocentric principle here is God as the lawgiver whose legal system is the outworking of His love. By obeying God's law, we manifest our love to others. God commands that we love others. In doing so, we fulfill the law.
Debt: Secured and Unsecured Paul begins with a command to avoid debt. He does not offer a reason. The Old Covenant did. Debt is a form of servitude. "The rich ruleth over the poor, and the borrower is servant to the lender" (Prov. 22:7). Debt does offer benefits. If it didn't, people would avoid debt. But servitude also offers benefits. This is why the Mosaic law allowed men to become permanent slaves. "And if the servant shall plainly say, I love my master, my wife, and my children; I will not go out free: Then his master shall bring him unto the judges; he shall also bring him to the door, or unto the door post; and his master shall bore his ear through with an aul; and he shall serve him for ever" (Ex. 21:5-6). The hole in the ear was the mark of a Hebrew slave. It symbolized a man who could be physically pulled around by his master by means of a ring in the ear. A ring in an animal's nose enables his owner to insert a rope and pull him around.
Unsecured debt symbolizes a man's legal subordination to a creditor. If a debtor has indebted his body, his reputation, or his tools by means of a promise to repay out of his future earnings, then he is at risk. His future earnings may fall. His future expenses may rise. What if he cannot repay the loan? Until the late-nineteenth century, debtor's prison was common in the West. The debtor was put in prison until a relative paid off his debt. Today, he may legally declare bankruptcy, but he must sell most of his assets to repay his creditors.
Secured or collateralized debt is different. The loan is made to a borrower so that he can purchase an asset. If the borrower fails to repay, the creditor can legally take possession of the asset. The borrower then loses legal control over the asset, but he himself is not penalized, except possibly in the effects of a downgraded credit rating, i.e., his ability to take on debt. The creditor's legal claim is not against the debtor's person; it is against his debt-purchased asset.
A debtor today does not face the same degree of risk that debtors did in Paul's day. Because of the burden of debt, he may decide not to take certain risks that could threaten his income, such as quitting his job and moving out of town to look for a better job. His debt burden limits his physical mobility. But the mortgaged asset may give him greater upward social mobility, such as a tool or education that enables him to earn a better income.
Debt and Deferred Delivery
Paul's general warning is in the form of a command. Do not owe anyone anything, he says. The advantages of debt should be avoided. Yet there is a hidden problem: the debt aspect of any purchased asset that is not delivered immediately. Say that a person buys a ticket to a future event. He wants to be sure that he can attend the event. The ticket's seller has become a debtor. The ticket's seller may choose to buy performance insurance in case the theater burns down. Then the insurer takes on the debt. This is a risk that the someone in a deferred delivery transaction has to bear: ticket-buyer, ticket-seller, or insurer. Is Paul saying that a Christian should never sell a ticket in advance? This would greatly increase the buyer's risk. If he waits until the last day to buy a ticket, the line may be long, forcing him to waste time. The event may even be sold out before he gets to the front of the line. The risk of missing the event is inescapable, one way or another. Someone must bear it.
Then there is hired labor. A person goes to work. He is not paid in the morning. The Mosaic law mandated that he be paid in the evening. "Thou shalt not defraud thy neighbour, neither rob him: the wages of him that is hired shall not abide with thee all night until the morning" (Lev. 19:13).(1) The employer in Jesus' parable of the hirelings honored this law (Matt. 20:8).(2) So, the Mosaic law allowed some very short-term debt. It had to. Debt is inescapable in a labor contract. Either the employer owes the worker at the end of the day, or else the worker owes the employer a day's work if he gets paid in the morning.
When a person writes a check to make a purchase, the check must clear before the transaction is settled. Until it clears, there remains a credit/debt aspect to the transaction. Must all transactions be made in cash? Doesn't this make things more risky for buyers, who must then carry cash? Aren't sellers at even greater risk? They have far more cash in the till than if checks and credit cards were allowed.
More than any other people, Americans use credit cards to buy items. For some period of time, credit card users are debtors, even if they plan to pay off the loan as soon as the bill arrives. The use of credit cards is a great convenience. But it is a debt.
A person may have a savings account at a bank. The bank that has allowed him to deposit his money is now a debtor to him. Is banking prohibited by Paul? It was not prohibited by Christ (Matt. 25:27).(3)
The world could not exist without debt, such as the employer's daily debt to workers or their debt to him if he has paid them in advance. The modern economy's high division of labor is funded by credit instruments, which are also debt instruments. If these were made illegal overnight, how could the modern world feed itself? The commodity futures markets are debt markets. They have made farming and other production activities less risky. Yet most futures contracts are forms of almost unsecured debt. Both parties to the transaction -- long and short -- present a small payment in advance, called margin, but in fact a performance bond. It is a small fraction of the total potential debt in most transactions.
Farmers borrow money to buy seed, fertilizer, fuel, and pay workers. Their property secures some of this debt. They are in bondage, but the Old Testament allowed people to be in bondage.
Unsecured Debt and the Division of Labor There has been an enormous expansion of unsecured debt in the modern economy. No one knows how much unsecured debt there is. Futures contracts are basically unsecured debt. The conventional estimate in A.D. 2000 is that, worldwide, there are close to one hundred trillion dollars in unsecured financial transactions, called derivatives.(4) The total may be much more than this estimate. It is not much less.
The overwhelming majority of the world's output is based on the extension of credit. Therein lies the threat. The modern system of deferred payments depends on an unbroken chain of payments. If debtor A cannot pay creditor B until debtor C pays creditor A, then there is a possibility of a collapse of the payments system if debtor C cannot repay. Near-universal bankruptcies would paralyze mass production. People produce in order to sell their output. Without expectation of payment, producers cease producing. Their suppliers cease making deliveries, as will their suppliers, all the way down the line.
The modern world is wealthy beyond historical comparison, but its output rests on faith: faith in unbroken payments by debtors to creditors. Everyone assumes, implicitly or explicitly, that most creditors know what they are doing when they lend, and that most debtors know their limitations when they borrow. There is no way to prove in advance that this faith rests on legitimate assumptions. "Now faith is the substance of things hoped for, the evidence of things not seen" (Heb. 11:1). This definition of faith does not apply only to faith in God. It applies to faith in everything that we rely on to sustain us.
The expansion of credit/debt has increased the division of labor to levels undreamed of before World War II. Credit has made capital available to entrepreneurs, who have used this borrowed money to add to the productive capacity of their businesses. They have, in the words of the Austrian School economists, lengthened the structure of production. They have increased the specialization of production on the assumption that consumers will buy the output of these specialized, price-competitive systems of production. People in their capacity as producers have cooperated with buyers by becoming more specialized in their efforts to meet expected future demand. They have left older, less specialized jobs to become more specialized and more productive. Credit has financed this extension of the division of labor all over the world. The problem comes when credit -- especially unsecured credit -- collapses in a wave of defaults. What happens to consumer demand? It falls. What happens to the highly specialized structure of production? It becomes unprofitable. The extended cooperation that had been induced by the growth of unsecured credit is reversed. There is now far less cooperation. This is called unemployment.
A collapse of the debt-based payments system would kill millions of people in the industrial world -- possibly hundreds of millions. We depend on a complex system of production to sustain us. Very few urban people could survive if the system of debt-based payments completely collapsed. Very few commercial farmers could stay in business: no money to buy seeds, fuel, pesticides, and fertilizer. There would be no money to pay workers. Barter would replace today's electronic money. The division of labor would collapse. Output would collapse. In the West, this would be a death sentence for millions of people.
Is such a breakdown in the payments system possible? Yes. But governments and central banks would then flood the financial system with fiat paper money to replace frozen contracts for electronic money. There are physical limits on the production of modern paper money, but governments could lower the paper's quality standards and crank out lots of paper bills. This would threaten the world with mass inflation as an overreaction to the collapse of payments. There would be great uncertainty and enormous financial losses.
The extension of credit is the extension of debt. The modern world has prospered for at least two centuries because it has ignored Paul's warning, assuming that his warning was meant to be universal. Was it?
Lenders Without Borrowers? Paul knew the words of Moses: "For the LORD thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee" (Deut. 15:6). "The LORD shall open unto thee his good treasure, the heaven to give the rain unto thy land in his season, and to bless all the work of thine hand: and thou shalt lend unto many nations, and thou shalt not borrow" (Deut. 28:12). This promise was given to a very small nation. International trade was minimal. There were no banks or futures markets. God's message was clear: by extending credit, Israelites would be extending control over foreigners. They were in effect planting seeds in another man's garden. Foreigners would be in debt to God through debt to God's people. Extending credit was a means of extending God's dominion.
This means that taking on debt that was extended by foreigners was a means of surrendering God's kingdom to them. "The stranger that is within thee shall get up above thee very high; and thou shalt come down very low. He shall lend to thee, and thou shalt not lend to him: he shall be the head, and thou shalt be the tail" (Deut. 28:43-44). The Mosaic law recognized the two-sided nature of the transaction. For every credit, there is a debt, and vice versa.
The institutional reconstruction of society will come whenever the world adopts saving faith in the God of the Bible. As more people come under Paul's command, there will be fewer willing debtors. This is a serious analytical issue for anyone who believes that there will be an unprecedented period of blessing for the church after the conversion of the Jews, which Paul believed.(5) Where will the God-fearing borrowers be after the world turns to Christ? If they heed Paul's warning, they will pay off their consumer debts and not assume new ones. The Mosaic prophecy regarding credit extension to foreign nations will no longer be valid, if by "foreign" God meant "covenant-breaking," which He presumably did.
If men refuse to borrow against hoped-for but uncertain future earnings, investors will have to buy ownership, which is risky, rather than settle for fixed payments. Paul's command, if obeyed, means that in a progressively covenant-keeping world, the sale of ownership will replace debt as the primary means of funding new business projects. Owners will raise money for new business projects, not by borrowing money, but by selling shares of ownership to investors. There are only four ways to raise money for a profit-seeking project, other than begging: 1) borrow money from interest-seeking creditors, 2) sell partial ownership to investors, 3) put up your own money, 4) borrow from your customers. The best example of the fourth method is a subscription to a periodical. The subscriber pays the full subscription price to the publisher, and the publisher becomes a debtor for the period of the subscription.
Reduced Risk
A slow, steady shift from credit investing to equity investing would reduce the likelihood of a financial breakdown due to a collapse of the payments system. The main threat to the payments system today is the widespread use of uncollateralized debt that is treated as money or near-money. A large default could create a domino effect. If nobody can pay his creditors until he is paid by his debtors, nobody will be paying. The monetary system is based on fractional reserves -- uncollateralized loans -- so the division of labor is at risk.
If businessmen ever refuse to borrow, creditors will have to buy ownership, which is risky, rather than settle for fixed payments. In a world where investors refused to enter into unsecured, uncollateralized debt contracts, payments would be based on warehouse receipts for money metals. A warehouse receipt appears to be a form of debt -- an IOU -- but it is fully collateralized by an asset. It is better understood as proof of legal title to physical property. The warehouse receipt is not a debt that is issued by a creditor against uncertain future income. It is simply proof of existing title to a physical resource. The existing owner of the warehouse receipt exchanges it for another asset: goods or services. The recipient of the warehouse receipt must pay the warehouse for the services of storage and safekeeping. Perhaps at the time of sale, a small percentage of the purchase price is sent by the recipient of the warehouse receipt (money) to the warehouse owner. This would be easy to do with computerized payments.
Ownership carries with it responsibilities. There are no free lunches in life, other than God's grace. Therefore, whenever paper money or electronic money circulates free of charge, deception has to be involved somewhere in the series of transactions. Perhaps some precious metals storage company has issued receipts for monetary metals not on deposit. These receipts are spent into circulation by the issuer. This is a form of theft. It is fraudulent. This practice should be treated by civil courts as illegal. In the case of commercial banking, fractional reserves are a way of life. Banks make loans while simultaneously promising depositors the right to withdraw their money at any time. This is a form of counterfeiting. Its results are price inflation and the boom-bust cycle.(6)
Replacing Credit With Equity Ownership Paul's general principle here is debt-free living. The threat is debt servitude: an economic obligation that can result in physical servitude. As we have seen, the Mosaic law made provision for servitude, including voluntary servitude. Sometimes servitude is preferable to liberty for some people, but it is always a condition of reduced personal responsibility. There are times when temporary debt is a means of dominion. A debt to fund one's education can be a means of dominion: temporary economic servitude in preparation for dominion. Also, when a debt is offset by collateral, such as a home, debt can be a tool of dominion. Buying a home from someone who wants a stream of income -- a creditor -- and then renting it to a person who is not ready or able to go into debt to buy a house, is a way to build capital. The renter pays the house's owner monthly, who in turn pays off the creditor. The creditor can repossess the house if the buyer defaults. He keeps all of the money paid by the buyer, and he reclaims his capital asset. This is a means of risk-reduction on the part of the creditor. He prefers to lend to a buyer with the house as security for the loan, rather than lend to some impersonal third party with no collateral to repossess, such as a bank.
Some owners of capital prefer to extend collateralized credit rather than buy an equity position. They seek out borrowers. This is biblical. In a Christian world that obeyed Paul's injunction, however, creditors would find fewer and fewer low-risk borrowers. Interest rates would then diverge sharply: falling for Christian borrowers and rising for non-Christians. Rates would fall because of these conditions: a fixed or increasing supply of loanable funds and decreasing demand for debt. The potential economic returns from purchasing ownership shares would look better. This change in people's borrowing habits would move the world's investors toward equity investing. Until then, lending is legitimate.
What about borrowing from a creditor-seller to purchase an income-producing asset that serves as collateral for the debt? This form of borrowing places the borrower at risk of losing any money that he has paid to the seller -- i.e., the buyer-borrower's equity in the asset -- but it does not place his other assets at risk. By paying down the debt each month, the asset's buyer becomes an equity investor, month by month. He can lose title to this equity if he ever stops paying. There is risk of loss. But there is always risk in life. The question is: How much risk? The buyer-debtor does not place his other assets at risk, only the down payment and the equity built up over time. Businesses are sold on this basis all the time. So is real estate.
A seller-financed sale of an income-generating asset makes the seller a creditor and the borrower an equity investor. Both parties bear risk. Each bears the kind of risk he prefers. The seller may have to repossess the asset some day, but if it has a market price, he still owns equity in the asset. He can sell it if he chooses. The buyer risks having to surrender ownership of the asset, thereby losing all of his equity. But the loss of one's equity position -- sale price above purchase price -- is possible in any purchase of equity, with or without debt.
I do not think that Paul is here condemning a fully collateralized loan. If there were low debt in society, investment would have to shift to the purchase of equity. Paul's injunction, when coupled with postmillennialism, is a call to substitute debt for equity in investing. A collateralized loan is an equity investment. There is a debt element in the transaction, but essentially it is an equity investment. It is consistent with the results of Paul's injunction in a Christian social order: to replace credit with equity in the portfolios of covenant-keepers and to reduce unsecured debt by covenant-keepers.
The Law and Love "Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law." John Murray does not think that love is an obligation. Rather, the sense of the passage is this: "Owe no man any thing, only love one another."(7) "He that loveth another hath fulfilled the law." But what does this mean? Does it mean that dealing with others justly is the way that we should demonstrate our love toward them? Or does it mean that loving them fulfills the law? Which law? Moses' law? Christ's law?
Paul says which law: the Mosaic. "For this, Thou shalt not commit adultery, Thou shalt not kill, Thou shalt not steal, Thou shalt not bear false witness, Thou shalt not covet; and if there be any other commandment, it is briefly comprehended in this saying, namely, Thou shalt love thy neighbour as thyself." The summary follows the Septuagint's translation of Deuteronomy 5:17-21.(8) The final clause is based on Leviticus: "Thou shalt not avenge, nor bear any grudge against the children of thy people, but thou shalt love thy neighbour as thyself: I am the LORD" (Lev. 19:18). Here is the same theme as the one Paul introduced in the previous chapter: no personal vengeance. Christ used a similar approach in his summary of the Mosaic law. "And, behold, one came and said unto him, Good Master, what good thing shall I do, that I may have eternal life? And he said unto him, Why callest thou me good? there is none good but one, that is, God: but if thou wilt enter into life, keep the commandments. He saith unto him, Which? Jesus said, Thou shalt do no murder, Thou shalt not commit adultery, Thou shalt not steal, Thou shalt not bear false witness, Honour thy father and thy mother: and, Thou shalt love thy neighbour as thyself" (Matt. 19:16-19).
Love is mandatory, Murray writes. "If love is the fulfillment of the law this means that no law is fulfilled apart from love. . . . It is only through love that we can fulfill the demands of justice."(9) Murray places the decalogue, and through it, the Mosaic law, at the heart of Paul's injunction. "This appeal to the decalogue demonstrates the following propositions: (1) the decalogue is of permanent and abiding relevance. (2) It exemplifies the law that love fulfills and is therefore correlative with love. (3) The commandments and their binding obligation do not interfere with the exercise of love; there is no incompatibility. (4) The commandments are the norms in accordance with which love operates."(10)
Conclusion Paul writes that debt is something to be avoided. Debt is the antithesis of love. Love fulfills the law, not by abolishing the Mosaic law, but by filling it to the brim.(11) The Mosaic law identified debt as something to be avoided (Deut. 28:44). So does Paul. The debt he has in mind is a debt that places an individual at the mercy of the creditor. Jesus described hell as debtor's prison (Matt. 18:34). Paul was not arguing that all debt is evil -- just those forms that place a defaulting debtor at risk of his loss of liberty or reputation. Unsecured debt is to be avoided. It presumes too much on the future.
Footnotes:
1. Gary North, Leviticus: An Economic Commentary (Tyler, Texas: Institute for Christian Economics, 1994), ch. 13.
2. Gary North, Priorities and Dominion: An Economic Commentary on Matthew, electronic edition (Tyler, Texas: Institute for Christian Economics, 2000), ch. 40.
3. Ibid., ch. 45.
4. Gold is at $275 per ounce.
5. Chapter 6.
6. Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles (Auburn, Alabama: Mises Institute, [1962] 1993), ch. 10.
7. John Murray, The Epistle to the Romans, 2 vols. (Grand Rapids, Michigan: Eerdmans, 1959, 1965), II, p. 159.
8. Ibid., II, p. 161.
9. Ibid., II, p. 161.
10. Ibid., II, pp. 161-62.
11. Ibid., II, p. 164.
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