The Great Wealth Illusion

David Korten | August 29, 2023

Over the past quarter century, we have allowed a growing band of financial predators to create counterfeit financial assets from nothing to grow their personal control of the real wealth of the natural and human commons on which our mutual wellbeing depends. Crypto currencies are an example of such counterfeit financial assets. The most common counterfeit assets are called derivatives that involve contracts to buy and sell artificial financial assets based on changes in the price of bundles of real assets owned by others.

In mid-2023, various sources estimated that the various forms of fictious financial assets totaled over $1 quadrillion, a substantial majority of the world’s total financial assets. This is more than 10 times the total world GDP, the estimated value of global financial exchange relating to the purchase and sale of real goods and services. Many of the fictitious assets are hidden in offshore tax havens. Not all the exchanges included in GDP are beneficial. But nearly all relate to something real.

Definitions of fictitious assets vary, and the statistics are imprecise, yet all the reported estimates are breathtaking in their quantity. In her forthcoming book Wealth Supremacy: How the Extractive Economy and the Biased Rules of Capitalism Drive Today’s Crises, Marjorie Kelly, a leading global authority on business ethics and ownership, observes that in the 1950’s financial assets in the United States were roughly equal to GDP. She reports that by conservative estimates, U.S. financial assets are now five times U.S. GDP. (See “From the Book Shelf,” below.)

The full implications become clear when we note that in mid-2023 the poorest 50% of the U.S. population owned only 2.5% of total U.S. financial assets. The richest 0.1% owned 12.8%.

Kelly points out that the world of finance is currently driven by two basic fallacies.

1. Wealth Supremacy: The fallacy that persons with significant financial assets are “worth” more and have contributed more than others. 

2. Capital Bias: The fallacy that profit (including to the already obscenely rich) is inherently good and therefore should grow. Labor, however, is an expense and its costs should be minimized.

Money is nothing but a number we choose to call wealth. Financial assets acquired by pillaging Earth are an attack on the wellbeing of life. Growing fictional assets of no intrinsic value adds nothing to Earth’s real wealth. It does, however, give those who create and own those fictitious assets added stature and power to further pillage Earth and exploit its people

Beneficial labor, by contrast, is essential to life and the wellbeing of both people and Earth. Beneficial labor should be favored, justly compensated, and recognized as the defining measure of our personal worth.

The valid purpose of business is to mobilize beneficial labor in the service of life. A modest profit is essential to business viability. But maximizing profit is not a valid business purpose.

The current growing hardship of those doing essential work for pittance compensation understandably creates intense public anger. Skin color, gender, and religion all have their role in shaping the unjust distribution of financial assets, but the defining issue is the extreme and growing class divide between rich and poor. The obscenely rich predator class deflects the anger of the extremely poor excluded class—including poor white males—away from the real source of their misery and against one another.

We are dealing with a corrupt financial system for which a substantial majority of current financial transactions are purely exploitative and best eliminated. The rest require major restructuring with a goal to move toward a middle-class classless society that provides a secure and meaningful life for all people with no extremes of wealth and poverty.

There are many specific reforms required to achieve the needed economic restructuring. They include a financial system in which money creation and allocation is transparent, accountable, localized, and dedicated to securing the wellbeing of Earth and all its people. A primary challenge is to eliminate the creation of financial derivatives while implementing serious progressive taxation to reclaim and cancel the massive pool of fictitious financial assets while equitably redistributing the rest.

An essential initial priority will be a modest global financial transactions tax of perhaps .5 percent on all financial market exchanges involving the purchase and sale of financial assets. This should immediately eliminate most high-speed speculative financial trading like the current $7.5 trillion per year speculative trades in the Forex (foreign exchange) markets. Yet such a tax will have no consequential impact on real investments or the purchase and sale of real goods and services.

The financial transactions tax can be followed by a series of genuinely progressive taxes on income, financial assets, and estates to reclaim and retire fictitious financial assets while achieving an equitable redistribution of real assets and assuring everyone access to a living wage and essential social services including education, health care, and retirement.

Local control and sharing of power are also an essential part of the needed reform. To this end, private financial institutions must be limited to doing business in the country that issues their charter and supervises their operation. Private global banks should be broken up and restructured as local cooperative banks owned by local depositors to provide basic banking services, including  making loans to finance local home and business ownership.

Applying a traditional standard 10 percent reserve requirement on deposits will allow local cooperative banks to loan an amount up to 10 times the amount of their deposits. This will give local communities significant ability to create money locally to finance local housing and beneficial businesses and government projects of their choice without the complications and inefficiencies involved in creating and managing local currencies. Meanwhile, all other monopolistic profit-maximizing corporations should be broken up and restructured as worker and community owned cooperative enterprises dedicated to the wellbeing of the communities in which they do business.

The barriers to achieving these sensible reforms are monumental. A fundamental starting point is understanding that money is not wealth. Growing money simply grows claims against real wealth. It does not create or grow real wealth. Getting beyond inequality and the distortions caused by the wealth illusion is both within our collective human means and essential to securing a viable and mutually prosperous human future.

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