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The Illusion of Money
Real wealth or phantom assets? David Korten explores the difference between the kind of wealth that makes life better and the phantom wealth created by financial speculation.
Jan 23, 2011
In business school, we were taught to assess investment options to
maximize financial return. I don't recall that the professor ever
mentioned that this meant maximizing returns to people who have money-to
make rich people richer. Or that money is a system of power and that
the more our lives depend on money, the greater our subservience to
those who control the creation and allocation of money.
Nor do I recall asking my professors, "What is money?" "Why do we
assume that maximizing financial return maximizes the creation of real
value?" "How does the conversion of natural living wealth to financial
wealth create real value?" "What about the many fortunes built through
financial speculation, fraud, government subsidies, the sale of harmful
products, and the abuse of monopoly power?" I may have had some doubts,
but kept them to myself for fear of being dismissed as hopelessly
stupid.
Perhaps those who taught us economics, finance, and accounting did
not themselves recognize the difference between real living wealth and phantom financial wealth.
Real wealth
has intrinsic value. Examples include fertile land, healthful food,
knowledge, productive labor, pure water and clean air, labor, and
physical infrastructure. The most important forms of real wealth are beyond price
and are unavailable for market purchase. These include healthy, happy
children, loving families, caring communities, a beautiful, healthy,
natural environment.
Real wealth also includes all the many things of intrinsic artistic,
spiritual, or utilitarian value essential to maintaining the various
forms of living wealth. These may or may not have a market price. They
include healthful food, fertile land, pure water, clean air, caring
relationships and loving parents, education, health care, fulfilling
opportunities for service, and time for meditation and spiritual
reflection.
Money, a number on a piece of paper or created with an accounting enter, has no intrinsic value.
Wall Street generates it in astonishing quantities through accounting
tricks, financial bubbles, and debt pyramids. It appears from nowhere
and can disappear in an instant, as a phantom in the night.
Those engaged in creating phantom wealth collect handsome "performance" fees for their services and walk away with their gains. When the bubble bursts, borrowers default on debts they cannot pay and the bubbles and debt pyramid collapse in a cascade of bankruptcies.
The market, of course, makes no distinction between the dollars
acquired through means that enrich society, those created by means that
impoverish society, and those simply created out of thin air.
Money is money, and the more you have, the more the market eagerly
responds to your every whim. It is still only a number with no existence
outside the human mind.
It is easy to confuse phantom financial assets with the real wealth for which they can be exchanged.
Those who benefit from the creation of phantom wealth may never
realize that their gain is unfairly diluting everyone else's claim to
the available stock of real wealth. They may also fail to realize that
Wall Street and its international counterparts have generated total
phantom-wealth claims far in excess of the value of all the world's real
wealth, thus creating expectations of future security and comforts that
can never be fulfilled.
The deceptions are built right into our language. We refer to
speculation as "investment" and to phantom financial wealth as
"capital." Indeed, when we hear the terms wealth, capital, assets, or
resources we have no way to know whether the reference is to a real
asset or only to a phantom financial asset. Our language gives us no way
to make this essential distinction. It is no wonder we get confused and
fail to recognize that Wall Street produces nothing of real value.
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This article was written for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas and practical actions. Licensed under a Creative Commons Attribution-Share Alike 3.0 License.
David Korten
Dr. David C. Korten is a former Harvard Business School professor, a member of the Club of Rome, a founding member of the Alliance for Ecological Civilization, president of the Living Economies Forum, author of the international best-selling books When Corporations Rule the World; The Post-Corporate World: Life After Capitalism; and The Great Turning: From Empire to Earth Community; and the white papers “Ecological Civilization” and “Eco-nomics for an Ecological Civilization,” which expand on the concepts presented here.
In business school, we were taught to assess investment options to
maximize financial return. I don't recall that the professor ever
mentioned that this meant maximizing returns to people who have money-to
make rich people richer. Or that money is a system of power and that
the more our lives depend on money, the greater our subservience to
those who control the creation and allocation of money.
Nor do I recall asking my professors, "What is money?" "Why do we
assume that maximizing financial return maximizes the creation of real
value?" "How does the conversion of natural living wealth to financial
wealth create real value?" "What about the many fortunes built through
financial speculation, fraud, government subsidies, the sale of harmful
products, and the abuse of monopoly power?" I may have had some doubts,
but kept them to myself for fear of being dismissed as hopelessly
stupid.
Perhaps those who taught us economics, finance, and accounting did
not themselves recognize the difference between real living wealth and phantom financial wealth.
Real wealth
has intrinsic value. Examples include fertile land, healthful food,
knowledge, productive labor, pure water and clean air, labor, and
physical infrastructure. The most important forms of real wealth are beyond price
and are unavailable for market purchase. These include healthy, happy
children, loving families, caring communities, a beautiful, healthy,
natural environment.
Real wealth also includes all the many things of intrinsic artistic,
spiritual, or utilitarian value essential to maintaining the various
forms of living wealth. These may or may not have a market price. They
include healthful food, fertile land, pure water, clean air, caring
relationships and loving parents, education, health care, fulfilling
opportunities for service, and time for meditation and spiritual
reflection.
Money, a number on a piece of paper or created with an accounting enter, has no intrinsic value.
Wall Street generates it in astonishing quantities through accounting
tricks, financial bubbles, and debt pyramids. It appears from nowhere
and can disappear in an instant, as a phantom in the night.
Those engaged in creating phantom wealth collect handsome "performance" fees for their services and walk away with their gains. When the bubble bursts, borrowers default on debts they cannot pay and the bubbles and debt pyramid collapse in a cascade of bankruptcies.
The market, of course, makes no distinction between the dollars
acquired through means that enrich society, those created by means that
impoverish society, and those simply created out of thin air.
Money is money, and the more you have, the more the market eagerly
responds to your every whim. It is still only a number with no existence
outside the human mind.
It is easy to confuse phantom financial assets with the real wealth for which they can be exchanged.
Those who benefit from the creation of phantom wealth may never
realize that their gain is unfairly diluting everyone else's claim to
the available stock of real wealth. They may also fail to realize that
Wall Street and its international counterparts have generated total
phantom-wealth claims far in excess of the value of all the world's real
wealth, thus creating expectations of future security and comforts that
can never be fulfilled.
The deceptions are built right into our language. We refer to
speculation as "investment" and to phantom financial wealth as
"capital." Indeed, when we hear the terms wealth, capital, assets, or
resources we have no way to know whether the reference is to a real
asset or only to a phantom financial asset. Our language gives us no way
to make this essential distinction. It is no wonder we get confused and
fail to recognize that Wall Street produces nothing of real value.
David Korten
Dr. David C. Korten is a former Harvard Business School professor, a member of the Club of Rome, a founding member of the Alliance for Ecological Civilization, president of the Living Economies Forum, author of the international best-selling books When Corporations Rule the World; The Post-Corporate World: Life After Capitalism; and The Great Turning: From Empire to Earth Community; and the white papers “Ecological Civilization” and “Eco-nomics for an Ecological Civilization,” which expand on the concepts presented here.
In business school, we were taught to assess investment options to
maximize financial return. I don't recall that the professor ever
mentioned that this meant maximizing returns to people who have money-to
make rich people richer. Or that money is a system of power and that
the more our lives depend on money, the greater our subservience to
those who control the creation and allocation of money.
Nor do I recall asking my professors, "What is money?" "Why do we
assume that maximizing financial return maximizes the creation of real
value?" "How does the conversion of natural living wealth to financial
wealth create real value?" "What about the many fortunes built through
financial speculation, fraud, government subsidies, the sale of harmful
products, and the abuse of monopoly power?" I may have had some doubts,
but kept them to myself for fear of being dismissed as hopelessly
stupid.
Perhaps those who taught us economics, finance, and accounting did
not themselves recognize the difference between real living wealth and phantom financial wealth.
Real wealth
has intrinsic value. Examples include fertile land, healthful food,
knowledge, productive labor, pure water and clean air, labor, and
physical infrastructure. The most important forms of real wealth are beyond price
and are unavailable for market purchase. These include healthy, happy
children, loving families, caring communities, a beautiful, healthy,
natural environment.
Real wealth also includes all the many things of intrinsic artistic,
spiritual, or utilitarian value essential to maintaining the various
forms of living wealth. These may or may not have a market price. They
include healthful food, fertile land, pure water, clean air, caring
relationships and loving parents, education, health care, fulfilling
opportunities for service, and time for meditation and spiritual
reflection.
Money, a number on a piece of paper or created with an accounting enter, has no intrinsic value.
Wall Street generates it in astonishing quantities through accounting
tricks, financial bubbles, and debt pyramids. It appears from nowhere
and can disappear in an instant, as a phantom in the night.
Those engaged in creating phantom wealth collect handsome "performance" fees for their services and walk away with their gains. When the bubble bursts, borrowers default on debts they cannot pay and the bubbles and debt pyramid collapse in a cascade of bankruptcies.
The market, of course, makes no distinction between the dollars
acquired through means that enrich society, those created by means that
impoverish society, and those simply created out of thin air.
Money is money, and the more you have, the more the market eagerly
responds to your every whim. It is still only a number with no existence
outside the human mind.
It is easy to confuse phantom financial assets with the real wealth for which they can be exchanged.
Those who benefit from the creation of phantom wealth may never
realize that their gain is unfairly diluting everyone else's claim to
the available stock of real wealth. They may also fail to realize that
Wall Street and its international counterparts have generated total
phantom-wealth claims far in excess of the value of all the world's real
wealth, thus creating expectations of future security and comforts that
can never be fulfilled.
The deceptions are built right into our language. We refer to
speculation as "investment" and to phantom financial wealth as
"capital." Indeed, when we hear the terms wealth, capital, assets, or
resources we have no way to know whether the reference is to a real
asset or only to a phantom financial asset. Our language gives us no way
to make this essential distinction. It is no wonder we get confused and
fail to recognize that Wall Street produces nothing of real value.
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