Q&A
From the August AD 2009
Our Lady of the Rosary
Parish BulletinON THIS PAGE:
Polygamy in the Old Testament
Moral Hazard?
The Great DepressionQuestion: Abraham fathered children by two women; first Ismael by his wife’s maidservant, Agar; and then Isaac by his wife Sara (Genesis 16 & 21). Wasn’t that adultery? Does the Bible condone adultery? (A.H. Atlanta)
Answer: Let us start by saying that not everything mentioned in the Bible is intended to be emulated. Rape, war, murder, adultery, lying, and theft are all to be found in its pages—but certainly not because the biblical writer proposes them for approval.
Since the time of Christ we have an authoritative pronouncement that from the very beginning, marriage was intended to be an indissoluble union of just one man and one woman (Matthew 19:3-9). But in the same passage we note that in the Law of Moses God tolerated the possibility of divorce: “Moses, by reason of the hardness of your hearts, permitted you to put away your wives, but it was not so from the beginning.”
In the Old Testament Law, adultery is the relationship of a married woman with someone other than her husband. If the adultery is voluntary, both are to be punished with death, but if the woman is not married the act is not adultery (Leviticus 18:20, 29; 20:10).
In the Mosaic Law there are a few references to permissible polygamy: Exodus 21:10 legislates for the man who has taken a slave as a wife, and then wishes to marry another; Deuteronomy 21:15-17 speaks to how a man with two wives is to divide his property among his heirs. In practice we read that King David had six wives and a number of concubines (wives of lesser rank), and his son King Solomon had hundreds of each. Again, this mention does not mean that such behavior is encouraged—yet, it is not disparaged except in the case of Solomon, whose many wives included foreign women who led him to their false “gods.”
In the ancient world polygamy was often viewed as a necessary expedient. It made provision for woman who lost her husband in battle, enabling her to bear children throughout her fertile years, thus maintaining a growing tribal population. It also provided for the production of a male heir to a king or a wealthy man like Abraham; thus preserving continuity in the kingdom and long term social order for those associated with the wealthy man.
To be fair to Abraham, it must be recognized that he lived long before the time of Christ, and even before the promulgation of the Law of Moses. In his time, the Natural Moral Law was known only through human reason, and had not yet been revealed by God. This meant that the Moral Law was approximated by thoughtful men who determined right from wrong on the basis of what worked and did not work in society.
It was obvious that society could not function if people beat and killed and lied and stole from one another. But it was not equally obvious that society was better off without polygamy, at least in the circumstances mentioned above. It was at least possible for polygamous families to function successfully. Children were produced and nurtured in the sub-families that made up the larger whole.
Abraham was a man of his time—a time before the revelation of God’s Moral Law. He was from Chaldea (modern day Iraq) where some of the earliest attempts at codifying the Natural Moral Law, as understood through human reason, took place. Perhaps the most well thought out codification of the Natural Law in his time was the Code of Hammurabi, which in fact did regulate marriages to second wives and to maid-servants.[1] Even Saint Thomas Aquinas suggests that the ancients might have been justified in their polygamous unions:
Wherefore, since the good of the offspring is the principal end of marriage, it behooved to disregard for a time the impediment that might arise to the secondary ends [the community of works that are a necessity of life], when it was necessary for the offspring to be multiplied;
Saint Thomas envisioned a sort of dispensation from the Natural Law in this case:
Now the law prescribing the one wife was framed not by man but by God, nor was it ever given by word or in writing, but was imprinted on the heart, like other things belonging in any way to the natural law. Consequently a dispensation in this matter could be granted by God alone through an inward inspiration, vouchsafed originally to the holy patriarchs, and by their example continued to others, at a time when it behooved the aforesaid precept not to be observed, in order to ensure the multiplication of the offspring to be brought up in the worship of God. For the principal end is ever to be borne in mind before the secondary end. [2]
In summary, Abraham’s taking of a wife and a concubine would be seriously wrong for those of us who have received the Gospel of Jesus Christ. Yet for those who had not received this disclosure of God’s Natural Law; who had received only the Law of Moses, or had to work only with what could be known through natural reason it might be justified by the urgent necessity of bringing forth offspring—observing the primary end of marriage, with the possible exclusion of the secondary ends.
Moral Hazard?
Question: What is “moral hazard”?
Answer: Moral hazard is more properly a term of the insurance industry than of religion, but it certainly does have some moral overtones surrounding it. When people are tempted to do something destructive because they know that they will be compensated for any loss that they may incur, they are less likely to refrain from the destructive behavior. Society in general, and insurance companies in particular, have an interest in not compensating anyone for such immoral behavior. Should they do so, they are said to be creating a “moral hazard.” Your insurance company will insure your automobile because the believe you will likely not to want it to crash, burn, or get stolen. They may increase your interest in keeping the car safe by demanding that you pay a “deductible” amount before they will pay the rest of a claim. They will also refuse to insure something in which you have no interest, for that would be a gamble on something you will not protect, and on the loss of which you would stand to gain.
In the accompanying article we will see that deposit insurance creates a moral hazard in that it may motivate banks to lend recklessly, leaving the taxpayers to make good their losses. More recently we saw a moral hazard at work when the federal government overrode the state laws that would have prohibited “credit default swaps”—essentially insurance on investments in which one has no interest.
The Great Depression
Question: Were there moral aspects to the Great Depression? A lot of people suffered for well over a decade. Shouldn’t someone be held responsible? Can we prevent such a thing from happening again?
● Financial & Monetary Causes of the Depression ●
Earlier (December 2008-March 2009) we discussed the operation of the Federal Reserve System (the Fed) and the mechanism of fractional banking.[3] The reader may wish to review this discussion before continuing.
World War I was financed in large measure by government borrowing and inflation of the money supply. When things returned to normal after the War (1920-1921) a mild recession occurred as the economy re-arranged itself to meet demand for postwar production and to value things in terms of the inflated money supply. The recession was brief because the federal government took no steps to intervene in the economy other than to cut taxation and spending, thereby making funds available for productive efforts. Secretary of the Treasury Andrew Mellon lowered the top income tax rate from 73% on incomes over a million dollars, to 25% in incomes over one-hundred-thousand dollars.
During the period referred to as the “roaring twenties,” these tax cuts enabled production and real income to grow steadily until 1929. Not only did the economy produce more things, it produced them in much greater variety. Mass production of automobiles and energy allowed common people to enjoy luxuries and labor saving devices not even dreamed about by the rich a few decades before. People were no longer limited to gas or kerosene lighting, nor constrained to travel along the fixed paths of the railroads and the rivers. Electricity provided not only lighting, but fans and refrigerators, radios and phonographs, and a goodly number of small household appliances. Private trucks and cars proliferated, changing both the patterns of commerce and recreation. Radio stations multiplied, bringing about the nationwide dissemination of entertainment, news, and opinion molding.
During the twenties the Fed made credit easily available by mandating low interest rates, and allowing banks to increase their reserves by freely discounting commercial paper, and foreign and domestic acceptances (bank guarantees that a buyer will make good on his purchase contracts) at low rates. The Fed allowed banks to borrow inexpensively against such notes and promises to pay. Supporting the return of the British pound to its pre-war exchange rate, the Fed agreed to further inflation, engaging in large open market operations in 1922, 1924, and 1927.
In a free market, money is a commodity like all others, subject to the forces of market supply and demand. The interest rate is a function of how much money savers are willing to lend to entrepreneurs, and how many entrepreneurs are bidding for that money. The Fed tampered with this relationship, making money artificially available, causing entrepreneurs to mistakenly believe that more real wealth was available for investment and consumer purchases than there actually was. With cheap credit businessmen borrowed money expecting to make returns on investments that would be unprofitable when exposed to the forces of the real market. With easy money, inefficient firms could continue to operate for years. The Fed falsely signaled a boom extending from the “roaring twenties” at least into the decade beyond. Money is money, and, once loaned by the Fed and the banks, found its way into highly speculative investments just as well into truly profitable investments. The stock market crash of 1929 was simply the bursting of the monetary bubble produced by nearly a decade of artificially created credit.
There is some discussion about whether the Fed helped or hindered recovery after the crash. One school of thought (espoused by the current Fed Chairman, Ben Bernanke, and others that believe the economy can be revived by printing money) is that the Fed should have made interest rates low and credit very lose in order for failing businesses to get back on their feet.. This opinion ignores the fact that businesses fail when they make inefficient use of resources—failure is the mechanism by which those resources are re-directed to more productive use. Had the Fed been tighter with interest rates and credit, the process of re-direction of manpower, materials, and entrepreneurial ability would have taken place much more quickly, ending the depression in a year or two (as it ended in 1921), and allowing people to get on with their lives.
● Bank Failures ●
In theory, checking depositors can expect to remove their deposits from a bank “on demand” (savings accounts may be subject to a specified waiting period). But fractional reserve banking makes this impossible if more than a small percentage of customers decide to withdraw their deposits at the same time. Most of the depositors’ money (perhaps ninety or ninety-five percent) has been loaned to bank customers, and even the shortest term loans cannot be called in immediately. Only a few depositors are enough to “make a run on the bank,” after which it must close its doors to seek bankruptcy protection, quite possibly never to open again.
During the twenties, many states embracing the “big-is-bad” mentality of the “progressive” “trust-busters” adopted unit banking laws, prohibiting banks with more than one branch. The McFadden Act of 1927 brought federal law to restrict the operation of national banks to the state in which they were located and required them to observe the branch or unit banking law of that state.
Unit banking proved disastrous for rural banks, particularly for banks in agricultural economies, and especially so in single crop economies. Imagine, for example, a bank in a community where virtually everyone depends on the cotton crop. If the crop is poor, some of the cotton farmers will default on loans taken out for their farms. The same cotton farmers are also the bank’s depositors. When the depositors remove money to buy necessities and to pay for the next planting they may quickly deplete the bank’s reserves—reserves that will never be replenished because the cotton farmers have defaulted on their loans. Under such a situation not only does the fractionally created money disappear, but is likely that the physical assets of the farmers and the banks will decline in value as they are put up for desperate sale. There are no branches in other economies that can provide funds to keep the bank solvent until the bank run can be resolved.
In the cities the unit banks fare a little better because their depositors and borrowers are more likely to be in a variety of industries. A cotton crop failure will have some effect, but the vast majority of their clients will be in a number of other industries. Of the roughly six thousand bank failures in the decade up to the crash, about eighty percent of them occurred in the rural unit banks. Where they were allowed, the branched banks were the most secure of all, except for the branched banks that also provided investment services for stock and bond buyers and sellers.
As might be expected, more banks began to fold after the market crash, including some significant big city banks. For example, The Bank of United States [sic] was the third largest in New York City and twenty-eighth in the nation, until it failed in December of 1930.[4] The panic caused by the bank failures led several state governors—Nevada, Michigan, Indiana, Ohio, Illinois, and Pennsylvania—to declare “bank holidays”—periods of closure intended to let the banks arrange to meet expected withdrawals when they opened again. Of course, the “bank holidays” caused even greater panic as depositors were unable to withdraw even from sound banks. No one knew whether the holidays might be repeated in those states or spread to other states. The bank closures (as well as a record increase in taxes in 1932) caused people to keep their money “under the mattress,” making it difficult for even the most efficient businesses in the private sector to obtain funding—once again postponing recovery.
On the day after he took office as president Franklin D. Roosevelt invoked the World War I Trading With the Enemy Act to declare a nation-wide “bank holiday.” This was clearly illegal, but Congress passed The Emergency Banking Act, ex post facto (also illegal) giving Roosevelt the authority to close the banks in peacetime. The banks closed on March 6th, and only those declared “sound” by the government were to open on March 13th. The law also provided for loaning up to a billion dollars to banks with cash flow problems. The Emergency Banking Act also empowered the Fed to issue Federal Reserve Notes not backed by gold, but only by government bonds!
The Glass Steagall Act of June 1933 provided for federal deposit insurance—good for the depositors, but giving the banks less incentive to operate conservatively. The cost of bank failure was now passed from the depositors to the taxpayers. Once again, the “big is bad” mentality prevailed—with no evidence that facilitating stock and bond trading had caused any bank failures, the Act also forbade commercial banks from handling such investments—precisely what was needed to further weaken the banks.
[To be continued
“The Great Gold Robbery of 1933”]
NOTES:
[1] Codes 138-149 http://avalon.law.yale.edu/ancient/hamframe.asp
[2] Summa Theologica, III-Supplement, Q.65 “Plurality of Wives”
