The essential economic fallacy which needs addressing is that capitalism is not synonymous with a market based economy.
We are linear, goal oriented creatures in a cyclical, reciprocal, feedback driven reality and while markets need money to circulate, people see it as the signal to extract and store, from the noise of society and the economy. Requiring ever more to be added and ever more metastatic methods of storing what has been extracted.
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. The hallway is a medium, the hall closet is a store. The average five year old understands the difference, but economists lack that level of insight.
The functionality of money is in its fungibility. We own it like we own the section of road we are using, or the air and water passing through our bodies.
Only if the value is inherent, as with gold and presumably bitcoin, is money a commodity, otherwise it is a contract, with the asset backed by a debt. So in order to store the asset, similar amounts of debt have to be generated.
One method is to squeeze the flow of money through the general economy, requiring it to run on more debt, drawing that investment capital back into circulation. which creates a centripetal process of predatory lending, drawing all value to the center. Since finance is the circulation system for the entire community, this is like the heart telling the hands and feet they don’t need so much blood and should work harder for what they do get.
The other is for the government to be debtor of last resort. The elephant in the room is that the capital markets could not function, without government siphoning up trillions in surplus money. The secret sauce of capitalism is that public debt backs private wealth.
Money is a public utility and needs to be treated as such. It is an economic lubricant, not a fuel. The problem is not so much injecting it where it’s necessary, but drawing out the excess. Logically government could tax out what it currently borrows, but since people see it as personal property, not a contract between the individual and the community, this is impossible.
There isn’t sufficient productive investment potential to store the amounts of wealth we want, but we do save for many of the same reasons, so we need to understand that society is composed of both public and private aspects. A healthy society needs both working together. Making the public commons a logical form of investment and stored value, rather than everyone thinking their bank accounts can be their economic umbilical cord.
Then banking would become the accounting function to which it is best suited. Currently it is having its, “Let them eat cake.” moment.
