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29

THE ABCs OF FINANCE CAPITALISM

David Korten

The following are excerpts from IFG Associate David Korten’s recent presentation to a seminar of IFG associates, summarizing the form, dynamics and ramifications of what he calls the”economic disease” of finance capitalism. Surprisingly, even global corporations can be effectively dominated by this system, says Korten, as they are forced to maintain distortedly high profit margins to stay attractive to financial investors.

The losers are the rights of workers and the environment.

Korten is president of the People-Centered Development Forum and author of When Corporations Rule the World. [and A Post CorporateWorld-Life after Capitalism]. He was a former official of the United States Agency for International Development (USAID) in the Philippines.

Contrary to the title of my book, When Corporations Rule the World, it’s actually the global financial system that’s in charge. Much of the dysfunction in our economic system can be explained by the fact that the ruling financial elite has largely detached itself from most everything real. It pursues its own independent agenda and in the course of doing so is wreaking havoc on human societies everywhere.

While the stock market is booming and we are assured that we are getting richer by the day, we are also told that there is no longer enough money to provide an adequate education for our children, health care and safety nets for the poor, protection for the environment, parks, a living wage for working people, public funding for the arts and public radio, or adequate pensions for the elderly. How is this possible? What’s gone wrong?

The Real Economy vs. the Money Economy

To start with, we must get one basic point absolutely clear: money is not wealth. Money is a claim on wealth. Money itself is merely a number, sometimes printed on a piece of paper or embossed on a coin; other times existing only as blips in a computer. But basically it is an abstraction. An idea. Money isn’t really much use, except as others will accept it in exchange for things that are of real value: i.e., real wealth.

What we normally call “the economy” is in truth two separate systems. One is real world system of natural and human wealth-creation. It consists of factories, commodities, farms, stores, transportation and communications facilities, the natural productive systems of the planet, and people going to work in hospitals, schools, stores, restaurants, publishing houses, and elsewhere to produce the goods and services that sustain us. Call it the real economy or the wealth-creating system.

The second system, which we can call the money system, creates and allocates money itself. The money system is rather the less substantial system, as it is constructed solely of abstractions: buying and selling currencies, futures, stocks, etc.; money creating more money.

Its importance comes from the power it has to determine how the real wealth created in the first system is ultimately distributed. It is a curious division of responsibilities.

In the first system, people work to create the world’s useful goods and services. The people in the second system devote themselves to creating and maintaining a system of numbers that decides who will benefit from the work one in the first system.

Finance Capitalism: An Economic Disease

In a healthy economy, the money system is not the dominant value, nor is it the sole or even dominant medium of exchange. In an institutionally sick economy, the money system becomes dominant, as it has today. For example, as Bernard Lietaer also points out, 97.5 percent of foreign exchange transactions in the world are now that of the money system rather than the real economy. The creation of money has detached from the real economy. There is a name for this economic disease. It’s called “finance capitalism.”