Financialization and its discontents

This is an interesting philosophical piece by Prof. Perry Mehrling. He says both financialisation and discontent with it are hardly new.

Just that we get mixed up in our understanding of money and credit. We like money for some of its features and credit for some other features. But in the discontent we just focus on money and not credit:

The money view…..sees markets and finance as essential infrastructure for modern society.

Economists, for their part, focus on problems with how the logic of money and finance actually operates, even supposing that logic could be confined within a separate sphere of the “economic”. Probably no one thinks the present system is working well. But reaction to evident dysfunction has produced a vast array of proposed fixes, ranging from 100% money to bitcoin, from helicopter money to debt jubilee.

From a money view perspective, it is notable that almost all of the proposed fixes begin analytically from a conception of what money “really is” (or should be), and conceive of credit as a kind of superstructure built on top. Almost no one starts with credit as the elemental relationship, and hardly anyone recognizes the interlocking web of commitments that constitutes the fabric of the modern economy.

From a money view perspective, the origin of discontent seems to lie in the fact that each of us, in our interface with the essentially financial system that is modern capitalism, operates essentially as a bank, meaning a cash inflow, cash outflow entity. We like the elasticity of credit, that allows us to spend today and put off payment to the future. But we don’t like the discipline of money, which is to say ultimate payment.

And most of all, we don’t like the asymmetry of both credit and money. Creditors may or may not accept our debt, and even when they do they may or may not accept ultimate payment in the coin we prefer. The system is inherently hierarchical, hence our discontent, a discontent that is only made worse when creditors are people (or institutions) unlike “us”, and especially so when they insist on repayment in a currency not our own.

There is thus good reason for discontent, but there are also lots of bad reasons based on fundamental misunderstanding of the nature of the system. Focusing on what money really is – whether gold or state fiat – shifts attention away from what credit really is, which is to say away from the center of discontent. As debtors, we owe society; as creditors, society owes us. Whether we want to or not, we are each of us banks, managing our daily cash inflow and cash outflow relative to the larger system which is society.

All these debates over what came first – money or debt/credit are so absorbing. Despite much development in so called modern monetary economics and even more modern finance, these questions remain unanswered. As a result, the confusion continues over what needs to be fixed..


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