Economics, Trust, Imputation, and Worth (Updated)

goldShocking as it may be, courses in medieval history and theology do not always have immediate relevance to late modern society. There is a theme in medieval history and theology, however, that does illumine what is happening to the global economy. Since the early 1970s William J. Courtenay has been teaching us all about the nature of late medieval nominalism. He has called attention to the way the nominalists of the 14th century explained the relations between names (nomina) and the things they signify. The nominalists argued that the relation between the sign (e.g. a coin) and the thing it signifies (e.g. wealth) is not realistic (in the nature of things) but imputed. Courtenay has called attention to the case of the relative worth of a lead coin. Do we value a lead coin according to its intrinsic value or in some other way? The coin was valued according to the decree of the king. If the king declared the coin was worth x, then the coin was worth x.

What is a product worth? It is worth what someone will pay for it. Unless one has hoarded large quantities of actual commodities that people value in every circumstance (e.g. gold, imperishable food, water, and shelter) then most wealth is represented by signs such as coins or paper money or credit cards or bonds.

Consider the intrinsic value of a quarter. Why is it that we are able to trade a quarter for piece of gum? If one melted a quarter, what would be the ordinary market value of the elements of a quarter? Ordinarily those elements would not fetch one quarter of a dollar, yet the quarter stands for one quarter of a dollar. Why? Because we impute that value to it. The relative value of that quarter is a function of a shared agreement that this coin shall be regarded as twenty-five percent of one dollar.

This explains, in part, why housing and stock prices rise and fall. To a remarkable degree wealth is an expression of what other people value, that value is closely related to confidence and trust. Most of us go to work each day and we exchange labor for money. Few of us, however, tote home wheelbarrows of cash every two weeks. One may get a check or ones employer may make an electronic transfer. How many of us even carry cash any more? One may go for days or weeks without spending cash. We use a credit (Latin for “he/she believes”) card and to pay off the credit card each month we use more credit! In some way (by check or by another electronic transfer) we promise that we have x number of “dollars” which have transferred to our account by our employer who, in turn, has an account to which deposits have been made. All of this is some how related to the holdings of real cash, which is fractionally related to gold or some other valuable commodity (e.g. the good faith and credit of the United States), in a bank somewhere. What it all really means is that most of us, most of the time, are trading trust. Behind these electronic transfers is trust that the person paying the debt is creating something of sufficient value to someone else.

What about gold? Let’s say that, somehow, behind all those credit exchanges is gold. Have you ever wondered exactly why gold is valuable? Contrast gold to food. The value of food is more or less intrinsic. Unless a human takes in a certain number of calories each day and a certain amount of water, he will starve. Thus things such as food and water have intrinsic value but the same is not true for gold. Why, then, does gold have value? It may be that gold is necessary for certain products, but what happens if demand for those products diminishes? After all the price of gold has not been constantly high. The price of gold itself has fluctuated considerably in my life time. I recall gold prices being quite high in the late 70s and early 80s. They are high again. Why? In uncertain times, people value gold and demand tends to rise thus driving up the price but why do they value it if they aren’t using it to produce something (e.g. dental work or electronics)?  They value it because they believe that other people want it? Why do people want it? I have a theory: because it’s shiny. It’s true that food prices rise and fall (mostly rise) but I guess that, unless we begin eating gold, food prices are probably more stable than gold prices because people always have to eat but they don’t always want gold in the same way.

Modern economies are trust economies. In the middle ages people traded actual commodities. They traded grain and livestock. Today we trade credit. Indeed, according to the news, most Americans literally live on credit. They carry $8000.00 a year in high-interest credit card debt. Some company has said, “We think you’re good for it. You can spend $8,000 a year more than you earn.” Not surprisingly, when confidence flags and trust fails, economies fail.

Behind the current sub-prime crisis lay a series of violations of this trust upon which our economy rests. Lenders gave credit to those who could not create value (either by creating a product or by trading labor) worthy of such trust. Many of those borrowers bought took out loans, essentially credit, gambling that demand for the property they were buying would continue to increase. When demand for property began to slow, the value of the property dropped, and suddenly borrowers owed more than the worth of their property and, in the meantime, lenders had packaged these bad loans and sold them as “securities,” also violating trust. Investment houses, some of them now defunct, invested heavily in this bogus “securities.”

In response, governments have infused unthinkable numbers of dollars (or other currencies and capital) into banks and other financial entities. Why? In order to restore confidence to the markets and in currency. As I write, the American stock market is up. Investors feel more confident today. Who knows what will happen tomorrow or even by the close of the market today?

How could things fluctuate so wildly and apparently without warning? Housing prices rose at a historically unsustainable rate because people lost confidence in the stock market and invested in housing. That rise fueled the bad loans and the greed associated with them. When it became clear that the loans were bad, that behind them lay properties the market value of which had dropped, the crisis hit. For those who place their ultimate trust in “securities,” markets, gold or even people, so it will always be.

It is one thing to extend a relative degree of trust in human beings for the sake of living together but it is quite another to place ones hope for the future in wealth. If economic wealth is really a way of speaking about trust and imputed value, then, when it comes to economics, we’re all Protestants! The difference between what lasts and what does not is that, for Christians, our hope lies in the intrinsic value of the righteous obedience, death, and resurrection of Jesus. That intrinsic worth has been imputed, credited, to everyone who trusts in Jesus and in his finished work. God now regards all those who are so united to Christ as if he has done all that Jesus did for us.

The Christian faith is all about trust but that trust does not rest in sinful human beings but in the God who spoke and created all that is, who has become our heavenly Father for Christ’s sake. In the economy of salvation, God has his own currency, as it were. The signs and guarantees of his favor toward us are the Word of God, specifically the gospel message that there is a glorious transaction: our sins for Christ’s righteousness. That gospel message is signified and sealed in divinely instituted sacraments (Holy Baptism and the Lord’s Supper). Those instruments are as good as the God who instituted them and who stands behind them. Our economic currency may rest on the “full faith and credit of the United States” but the Christian faith rests on the actual immutability (changelessness) and faithfulness of the Triune Creator, sustainer, and Redeemer and that our confidence in him perfectly justified.


New survey suggests “social trust” breaking down over the last four decades.

This post first appeared in 2008.

    Post authored by:

  • R. Scott Clark
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    R.Scott Clark is the President of the Heidelberg Reformation Association, the author and editor of, and contributor to several books and the author of many articles. He has taught church history and historical theology since 1997 at Westminster Seminary California. He has also taught at Wheaton College, Reformed Theological Seminary, and Concordia University. He has hosted the Heidelblog since 2007.

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  1. But economists would not say that food has instrinsic value vis-a-vis gold. If you’re in a rocket ship and you had a choice between eating dinner or using some gold to fix a wire that is about to come loose. If the wire isn’t fixed, it will blow up the ship, and you with it. Which would you then prefer, food or gold? Which one would have more value to you?

    Also, the housing bubble was caused by interest rates that were set too low for too long, thus creating an inflationary spiral in the housing market. This was combined with subprime loans (euphamism for loans to poor people), creating excessive demand. This invited speculators to bid up housing prices even more. Now we’re paying the price for these misguided bank policiies, political correctness, and just plain greed.

    Just some thoughts,


  2. The ultimate worth of a dollar (specifically a dollar) is what is either mined from inside the earth, harvested from the ocean, or harvested from the land. It’s not all about what someone determines the value to be. Manufacturing, markets, intellectual ‘wealth’ and services exist on top of that.

    Gold is valuable because it is both rare and malleable.

    Economies have foundations that have to be there. It can’t be all trust and psychology and so on.

    A side note: with all the printing of money going on now we are looking at hyper-inflation in the near future, but we have an ace up our sleeve: drill, drill, drill. The liberals will now be even more against it knowing that it will stave off inflation, those sweet people.

  3. Alexander,

    I’m not an economist, but I’ve bought and sold a couple of houses and I’m pretty sure that I couldn’t do so by operating on the principle you advocate. Our house is worth what the market says it is, at least I hope so.

    Economies do have providential foundations, but in the providence of God, they operate on trust. How else do you explain a “credit crisis”?

  4. I wasn’t aware of advocating any principles that said markets don’t determine the price of something like a house.

    My point was the value of a dollar is ultimately based on the three things listed in my comment and not just what some person or institution determines its value to be. This is also why some countries are the major players in the world economy and other countries specialize in areas made possible by the big players. The big players are the countries rich in natural resources with a steady rule of law, etc. This is why the dollar (American dollar) is a standard in the world economy. It’s because the world knows something substantial underpins the American dollar.

    Trust between people – contracts, loans, etc. – in an economy is usually backed up by laws and law enforcement. When banks themselves lose faith that other banks can cover loans then you have a crisis. It’s a different level of the economy where law enforcement is more nebulous, as we’ve seen. But my main point was regarding what determines the inherent value of a dollar.

  5. Alexander,

    I agree that having commodities (natural resources) to sell is essential to wealth but I don’t think that changes the point I made.

    I agree that different economies function differently. There are 2/3-World economies that function the way pre-modern Western economies functioned.

    You’re not saying that, “if natural resources, then wealth” are you? There are many nations with lots of natural resources who are impoverished and, I suppose, there are places without many natural resources that are able to trade services for money.

    Yes, certainly laws enforce contracts. We live in a fallen world, but the current crisis suggests that it’s quite possible for an economy to outstrip the laws and the ability to enforce them. No laws can prevent a depression if trust between actors in an economy breaks down.

    There’s nothing inherent in a dime or a dollar that makes it worth anything. What makes a dime or a dollar worth something is that a merchant or a trading partner will accept it at face value. If the merchant refuses to credit/impute 100 cents to the dollar, because he doesn’t have confidence in what it represents, it is worthless.

    Take a peso into a store and see what happens.

  6. ps. I agree re gold being relatively rare and malleable but does that really explain why people value it so highly? Most people do relatively little with their gold. They don’t make electronics with it. They wear it.

    Aren’t there other relatively rare and malleable commodities out there that are not as highly valued?

    As to Vern’s point, most of us don’t live in space. Obviously, one’s environs determine to a large degree one’s economy.

  7. “It’s true that food prices rise and fall (mostly rise) but I guess that, unless we begin eating gold, food prices are probably more stable than gold prices because people always have to eat but they don’t always want gold in the same way.”

    Have you ever heard of Goldschlager?

    “If the merchant refuses to credit/impute 100 cents to the dollar, because he doesn’t have confidence in what it represents, it is worthless.”

    Or refusing to impute value to a penny let alone 100 of them?
    Bartering is a bit more understandable.

  8. The whole question of how money, value and wealth relate, and even what they are, is confusing–at least to me. As you rightly point out, Scott, you can’t just say “natural resources are wealth” because services and manufacturing capacity are, too (at least, there is something inherently wealth-creating about turning grain into bread). And currency only functions because we trust the currency, but ultimately, that’s a statement that we trust the issuer. The trust is that the issuer, when presented with this claim, for a pound or a dollar or whatever, will make good on his promise.

    Now, when we had a gold standard, we knew what we’d get in return for our pound note, or dollar bill: a tiny lump of the yellow, shiny stuff. And while we worked on the expectation that people would still value gold, it’s got a pretty strong track record. But what’s the promise for a fiat currency? Against what do we have a claim?

    [I think there must be a fairly wide cultural-financial gap between SoCal and the UK: I carry cash with me, spend some practically every day, and don’t have a credit card, and I’m far from alone.]

  9. Hi Philip,

    Yes, I carried a waistpack (“bum bag”) in the UK for 2 years just to carry the 50p and 1 stlg coins. Yikes! They were heavy. Now that’s money. Our coinage has become cheap looking and feeling.

    I sympathize with you re the gold standard. I don’t know that it will ever go back and I’m inherently distrustful of fiat money but it makes for a great illustration of covenants, trust, imputation and the like. I suspect that it makes civil life into a covenant of grace when it wants to be a covenant of works.

  10. Oh aye, it’s one of those things which tells us Brits we’re in “For’n”: the coins all feel like Monopoly money. Almost no matter where else we go in the world, we feel like there’s nothing to them!

  11. Obviously, the gold in space point can be illustrated by a down to earth example. It’s actually a reverse of the usual illustration, if you’re in a desert and dying of thirst, what’s more important: a bag of gold or a cup of water? In actuality, we don’t make a choice between aggregates (all gold v. all water), but rather we rank individual things in terms of their value to us at any point in time, in any environment, and with reference to our purposes.

    BTW, gold is economically valuable because people value it. One can point to characteristics of gold as a reason for this, but such characteristics are irrelevant. Believing that they do represents instrinsic value thinking. But intrinsic value is outside of purely economic analysis. The concept of intrinsic value is more relevant to aesthetics, morals, or art, where subjective valuation is not the only criteria of determining worth.


  12. Being rare is the first reason gold is considered valuable. This is not an irrelevant data point. Leaves are attractive, they are not rare.

    I.e. if everybody had easy access to unlimited amounts of gold it would be as valuable as dirt is today. Nothing to do with people thinking gold is pretty and whatever.

    Diamonds are rare. Too rare for the purposes of exchange. And they are not malleable.

    The ultimate worth of a currency though as stated is raw materials and then ability to manufacture and so on. What comes out of the inside of the earth, what is harvested from the ocean, what is harvested from the land (agriculture, livestock, etc.).

    If you were starting a country or a kingdom you could build a strong building for your treasury, and you could mint coins. The first thing that would back up the value of your coins would have to be crops or livestock or fish or tin or what have you. Eventually you may trade some of these valuable things for gold and accumulate some gold in your treasury, then lend money out (ten times the worth of the gold say) and you are now on your way.

    But as the citizens take loans and build and create and grow things and so forth the ultimate value of all that currency will rest on the three things listed in the first paragraph. Gold isn’t enough to be the foundation of a currency. It can hold your individual wealth and it can represent the real wealth that underpins your economy, but it alone can not do that.

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