Shocking 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.