-Caveat Lector-
As published in Business Ethics, January/February 1999. Please
address requests for permission to reprint to Marjorie Kelly,
editor, P.O. Box 8439, Minneapolis, MN 55408, U.S.A., Fax (612)
879-0699
The Difference Between Money & Wealth
How out-of-control speculation is destroying real wealth
by David C. Korten
The capitalist economy has a potentially fatal ignorance of two
subjects. One is the nature of money. The other is the nature
of life. This ignorance leads us to trade away life for money,
which is a bad bargain indeed.
The real nature of money is obscured by the vocabulary of
finance, which is doublespeak. We use the term "investors"
for speculators, whose gambling destabilizes global financial
markets. We use the terms "money," "capital," "assets," and
"wealth" interchangeably--leaving no simple means to differentiate
money from real wealth. Money is a number. Real wealth is in food,
fertile land, buildings, or other things that sustain us. Lacking
language to see this difference, we accept the speculators'
claim to "create wealth," when they expropriate it.
If in the 1980s we witnessed capitalism's triumph over communism,
in the new millennium we may witness capitalism's triumph over
life. For in the vocabulary of capitalism, the destruction of
life to make money is progress.
When a defender of global capitalism asks, "What is your
alternative? We've seen that central planning doesn't work," one
can respond, "Adam Smith had a good idea. I favor a real market
economy not centrally planned by governments or corporations." The
vital distinction here is between the market economy Adam Smith
had in mind, and the capitalist economy, which he would have
abhorred.
In a healthy market economy, enterprises are human-scale and
predominantly locally owned. People bring human sensibilities
to bear on every aspect of economic life--resulting in
self-organizing societies that maximize human freedom and minimize
the need for coercive central control.
Capitalism, by contrast, is about using money to make money for
people who have more than they need. It breeds inequality. Though
capitalism cloaks itself in the rhetoric of democracy, it is
dedicated to the elitist principle that sovereignty resides in
property rather than in the person.
A real market economy creates real wealth. Global capitalism
creates out-of-control speculation, which destroys real wealth.
a.. It depletes natural capital by strip-mining minerals,
forests, and fisheries, and by dumping hazardous wastes that
turn productive land and water into zones of death.
b.. It depletes human capital through substandard working
conditions, as in the Mexican maquiladoras, where vital young
women emerge after a few years with failed eyesight, allergies,
and repetitive stress injuries that leave them permanency
handicapped.
c.. It depletes social capital by uprooting factories on which
communities depend--leaving society to absorb the family breakdown
and violence that result.
d.. It depletes institutional capital by taking tax dollars
through public subsidies and tax exemptions, and real wealth
by weakening environmental standards essential to long-term
societal health.
Living capital, which has the special capacity to regenerate
itself, is the source of all real wealth. To destroy it for
money--a number with no intrinsic value--is an act of collective
insanity. A real-world example of this insanity is the 1997
Asian financial crisis, in which a so-called "financial miracle"
became a meltdown. That meltdown began in Thailand and spread
through Malaysia, Indonesia, South Korea, and Hong Kong, as
economies fell like dominoes. While specifics differed, the
experience of Thailand reveals the underlying pattern.
During the "economic miracle" phase, large inflows of foreign
money fueled rapidly growing financial bubbles in stock and
real estate prices. (When too much money chases too few assets,
those assets artificially "inflate" in price.) Those inflated
bubbles attracted still more money, much of it from international
banks eager to make loans to speculators, who secured loans with
the inflated assets. As foreign currency poured in, consumers
had the wherewithal to purchase imported goods, sales of which
skyrocketed--creating the illusion of a booming economy.
Buying rapidly appreciating stocks or real estate seemed, for
a time, a better deal than making productive investments in
industry or agriculture. Ironically, the f aster foreign inv
vestment flowed in, the more investments were sucked away from
industry and agriculture and production stagnated or declined in
both. Foreign financial obligations thus rose, while the capacity
to repay those obligations fell. Once the speculators realized
this was not sustainable, the meltdown began. Speculators pulled
money out in anticipation of a crash, stock and real estate prices
plummeted, and banks were left with uncollectable loans--creating
a liquidity crisis.
Capitalism can thus create an illusion of prosperity, even as it
sets the stage for economic collapse. Lest we think this a rare
example, we might note that since 1980, according to a McKinsey
study, the financial assets of the world's largest economies
have been growing at two to three times the rate of growth in
gross domestic product (GDP). Bubbles are everywhere.
And it is in the nature of bubbles to pop because trading away
life for money is not, in the long run, sustainable. Here's hoping
we learn this lesson more gently than Asian economies have,
but learn it we will. Squandering real wealth in the pursuit
of numbers is ignorance of the worst kind. The potentially
fatal kind.
_____________
David Korten is the author of When Corporations Rule the World,
and The Post Corporate World: Life After Capitalism.
--------------------------------------------
May 12, 2003
Morning Commentary
by
James Sinclair
www.JSMineset.com
Seven major international investment banking firms, through
bankruptcy-shielded subsidiaries, hold 94% of the estimated $142
trillion of non-regulated derivatives.
When in financial difficulty because of their derivative exposure,
these banks will, in my view, invoke the main principle of the
"Art of the Steal" which teaches that if you are the largest
borrower from the bank your loan cannot be called even if it is
non-performing without breaking the bank making the call.
Therefore, you do not have to service your loan if you are the
largest borrower from the bank. Similarly, the major derivative
dealers cannot go broke without breaking the world's banking
system. Warren Buffet on the other hand said last week that
derivatives can bring down the international banking system.
The Fed and the Euro Central Banks will have to produce the
monetary aggregate liquidity in world economies to sustain the
major derivative dealers in order to avoid bank failures of the
past. Therefore, dear comrades of the Gold Community "you know
who" can't go broke.
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