Money as a Social Disease
A PCDForum Paper Release Date May 20, 1997
by David C. Korten
In the history of capitalism's long expansionary cycles, it is finance capital that usually rules in the final stage, displacing the inventors and industrialists who launched the era, eclipsing the power of governments to manage the course of economic events. ...Since returns on capital are rising faster than the productive output that must pay them, the process imposes greater and greater burdens on commerce and societies.
William Greider, One World Ready or Not, p. 227.
What is this madness? The economy is booming. The stock market is setting new records. The U.S. is again heralded as the world's most competitive economy. We are assured that we richer than ever before and getting richer by the day. Yet we are also told 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. By the official wisdom, even though richer, we can no longer afford what we once took for granted. How is it possible? What's gone wrong?
A quick hint. The problem is most definitely not a lack of money. The world is awash in it. The world's 450 billionaires alone have combined financial assets greater than the combined annual incomes of half of humanity.
The problem is this: a predatory global financial system, driven by the single imperative of making ever more money for those who already have lots of it, is rapidly depleting the real capitalthe human, social, natural, and even physical capitalon which our well- being depends.
The truly troubling part is that so many of us have become willing accomplices to what is best described as a war of money against life. It starts, in part, from our failure to recognize that money is not wealth. Wealth is something that has real value in meeting our needs and fulfilling our wants. Modern money is only a number on a piece of paper or an electronic trace in a computer that by social convention gives its holder a claim on real wealth. In our confusion we concentrate on the money to the neglect of those things that actu ally sustain a good life.
It is striking how difficult our very language makes it to express the critical difference between money and real wealth. When we are told that person is wealthy or has a lot of money, we do not know whether she keeps boxes of money under her bed, has bars of gold bullion stored in a bank vault, or is the owner of vast empire of factories, buildings, land, or other physical assets. Nor do such terms as capital, resources, and assets distinguish the differences.
For years, when someone spoke of "international capital flows" it evoked in my mind imagines of huge ships transporting machine tools, construction equip ment, and other instruments of production from one country to another. But then I learned that an interna tional capital movement often involves nothing more than a bank transferring some numbers from one account to anotherquite possibly solely within its own computer.
The difference between money and wealth is not trivial. Picture yourself alone on a desert island with nothing to sustain yourself but a large trunk filled with bundles of hundred dollar bills. The point becomes immediately clear.
During a visit to Malaysia some years ago I met the Malaysian minister responsible for forestry. In explaining Malaysia's forestry policy he observed that Malaysia would be better once its forests were cleared away and the money from the sale was stashed in banks earning interest. The financial returns would be greater. The image flashed into my mind of a barren and lifeless world populated only by banks with their computers faithfully and endlessly compounding the interest on the profits from timber sales.
The importance of the difference between money and wealth is not limited to people who find themselves stranded on desert islands. It is basic to understanding why the more money we have as a nation the less we can afford. It is as well a key to understanding the underlying pathology of the global economic system.
Think of a modern money economy as comprised of two related subsystems. One creates wealth. It consists of factories, homes, farms, stores, transportation and communications facilities, the natural productive systems of the planet, and people going to work in factories, hospitals, schools, stores, restaurants, publishing houses, and elsewhere to produce the goods and services that sustain us. The other creates and distributes money as a convenient mechanism for allocating wealth. In a healthy economy the money system serves as dutiful servant of wealth creation, allocating real capital to productive investment and rewarding those who do productive work in relation to their contribution.
In a healthy economy, money is not the dominant value, nor is it the sole or even dominant medium of exchange. Indeed, one of the most important indicators of economic health is the presence of an active economy of affection and reciprocity in which people do a great many useful things for one another with no expectation of financial gain. Such voluntary sharing creates and maintains the social fabric of trust and mutual caring of which the social capital of any healthy family, community, or society is comprised.
Pathology enters the economic system when money becomes society's defining value and the primary currency of human exchange, grotesquely distorting public values and goals. Money, once convenient a means of facilitating commerce, comes to define the life purpose of individual and society. The human, social, and natural capital on which the well- being of any society depends becomes subject to sacrifice on the alter of money making. And money people prosper at the expense of working people. It is a social pathology called finance capitalism.
When financial assets and transactions grow faster than growth in the output of real wealth, it is a strong indication that finance capitalism has taken hold. A study by McKinsey and Company found that from 1980 to 1992 financial assets in the OECD countries grew twice as fast as their underlying economies and bullishly predicted that future financial growth would be three times real output growth.(1) Indeed, as the Malaysian minister noted, in the global economy money is growing a great deal faster than the trees.
Furthermore, the biggest profits are going to those who deal in pure finance. For 1996, the shareholders of the seven largest U.S. money center banks reaped an average total return of 44 percent. The 24 largest U.S. diversified financial services companies yielded their shareholders an average total return of 38.4 percent. Mutual funds specializing in finance averaged a 26.5 percent return, besting all other industry categories by a wide margin. Funds specializing in much touted technology stocks came in a poor second at 21 percent.
The growing dominance of money is also revealed in the increasing monetization of human relationships. Not long ago, even in the most supposedly advanced countries, half of the adult population worked without pay to maintain home and community. These are among the most fundamental and important of functions in a healthy economy. Now, it typically takes two adults holding two to three paid jobs between them to support a household. Child and home care is either left undone or hired out. Community service becomes the work of public employees to the extent there is public money to pay them. As the social capital of caring relations is depleted, family and community life fall into disarray.
Pyramids, Bubbles, and the Global Casino
Albania recently suffered a national crisis brought on the collapse of fraudulent investment schemes. Westerners wise in the ways of the market were bemused by the naivet