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Tuesday, February 26, 2013

Can Debt be a Good Thing?

Debt in the Bible is always criticized. It is seen as creating poverty and misery. But is debt really that bad? The CEO of a small pharmaceutical company wrote an essay in Christianity Today that questions the negative concept of debt.

When we take the word debt and its allied concepts from the Bible and transpose them literally into our 21st-century economy, I wonder if we are not running afoul of misinterpretation. In biblical times, there were generally three ways to use money: You could consume it, you could hoard it, or you could give it to the poor. Hence, Bible passages that talk about money, wealth, and even debt tend to reflect that perspective. There was little, if any, understanding of the predominant focus of capital in our economy: You can invest it to generate economic growth and thereby increase the overall wealth and well being of a society. (The Parable of the Talents in one biblical example that reflects this understanding of wealth.) The economy of biblical times was agrarian, rigid, illiquid, and Malthusian in its demographics—meaning that as the population grew, the economy food supplies did not grow sufficiently to support the additional people, and poverty and famine spread as a result. In contrast, our economy is post-industrial, dynamic, highly liquid (notwithstanding the challenges brought on by the financial crisis), and certainly post-Malthusian.

Think about the meaning of the word debt in those two economies. In the former, debt was inevitably a one-way trip to some form of bondage; in the latter, debt, when it is not used simply to finance conspicuous consumption, can have a very different profile. In other words, debt as referenced by Paul and as referenced by Ben Bernanke in his sessions with Congress are homonyms. They are spelled the same, but they mean two different things.


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