A large part of the problem is that we equate capitalism with a market economy, when it is more a financial cancer growing on the mechanism enabling a market economy.
Markets need money to circulate, but as goal oriented creatures, we see money as the signal to extract from the noise of society. Requiring ever more to be added and ever more destructive ways of storing what has been extracted. Resulting in the enormous financial bubble currently imploding.
Econ 101 says money is both medium of exchange and store of value, but a medium is dynamic, while a store is static. Blood is a medium, fat is a store. Roads are a medium, parking lots are a store.
As a medium, money is a contract, as the asset is backed by a debt. So in order to store the asset, similar amounts of debt are required.
For one thing, the more the network of society is reduced to this financial medium, the more it sets up a centripetal effect, as positive feedback draws the asset to the center of the community, while negative feedback pushes the debt to the edges. Since finance functions as the value distribution mechanism of the entire community, this is analogous to the heart telling the hands and feet they don’t need so much blood and should work harder for what they do get. The Ancients used debt jubilees to reset the process, but after a few centuries of colonialism and industrialization, we haven’t quite reached the end of the rope, though we are way out over the edge of sustainability.
The other primary consequence is that government has been induced to be debtor of last resort. It doesn’t take much knowledge of the capital markets to realize they could not function, without governments siphoning up trillions in surplus money. Where would it be invested otherwise? Derivatives? Apple stock? The secret sauce of capitalism is that public debt backs private wealth.
The functionality of money is in its fungibility. It is an economic lubricant, not a fuel. We own it like we own the section of road we are using, or the air and water passing through our bodies. Effectively, it is a public utility and has to be treated as such. Like taking the punch bowl away, when the party gets going, not just pouring more vodka in, when it runs low.
There simply is not the potential for productive investment, that we need for everyone to save for future needs. Though many of us save for the same reasons, such as housing, healthcare, raising children, retirement, etc, that if these could be invested in directly, as community assets and networks, than everyone trying to save for them individually, with their bank accounts as economic umbilical cords, we would have stronger communities and healthier environments, as stores of value and not just resources to mine.
As the executive and regulatory function of society, government is analogous to the central nervous system, as banking and money are to the circulation system and the blood running through it. There was a time when government was private, but when monarchs lost sight of the function they served to society, in order to be served by it, they were usurped and we went to government as a public function. Now banking is having its; “Let them eat cake.” moment.
Not that finance should be a direct function of government, any more than the head and heart are one. Politicians live and die on the hope they inspire and as we experience money as quantified hope, there is a strong tendency to inflate the money supply, when the easy options don’t work.
The fact is the current house of cards has fallen and we won’t be able to turn back the clock, so a way has to found to move forward.
