Monetary Shortage and Economic Crisis

One point which Luther touches upon rather in passing in the present sermon Von Kauffshandlung und Wucher, but which arguably represented a fundamental aspect of connection between his religious criticism, theology and his general economics, is the practice of hoarding money or, alternatively, putting it into unprofitable ventures such as indulgences or church interior for ritual purposes. Such practices seem to have become increasingly popular in Luther's age, as has been shown in chapter 1. And with his stance on indulgences, Luther also, wittingly or unwittingly, contributed something new to our modern knowledge in political economy regarding money and its speed in circulation – money's velocity of circulation.

The problem of velocity is important in at least two regards. First, it ties in with the hypothesis of, and the causal mechanisms triggering, a general depression as sketched in chapter 2. At times when profits and economic outlook are negative on balance, there will be fewer funds available for investment. People will be reluctant to spend or invest; they will hold back much more money for precautionary motives than is healthy for the economy. They will put it away for an indeterminate amount of time; not withdrawing it from circulation entirely or forever (which would make the amount of money go down), but rather withholding it from the market. This will decrease money's velocity. The Keynesian notion of holding cash for precautionary motives comes to mind; and as the mercantilist and cameralist authors before him (since about mid-seventeenth century), Keynes never tired of stressing the importance of spending money in the economy. Here he stood at the end of a long line of economic thought which had developed similar ideas since the early sixteenth century at the very latest, as the present chapter will show. This thought will be developed as an afterthought on Luther's economics as sketched in chapters 2 and 3; it adds some new light and context to Luther's theological and economic ideas.