generated surplus value. Some mainstream economists say that the investor is in
effect paid for abstaining from the immediate utility gains that using the money for
consumption would have brought, had he not lent it to someone else. Others would
say that interest is necessary to incentivize paying back, and a justified premium for
the risk involved in lending it to others.
All of this might have been true in times in which shareholders were also
stakeholders and typically longer-term investors. Today, the vast majority of stocks
are held by sharehoppers. Buying and selling within seconds is not really taking
part in the entrepreneurial risk of a business. The traders doing it do not care what
the companies do. Their algorithms track price developments and seek to gain from
differences at times of purchase and selling. Whether the companies flourish or tank
does not matter to them.
It does not come as a great surprise that profit making increasingly occurs for
those inventing more and more financial instruments or ‘products’ like derivatives,
credit default swaps, futures and options that are exchanged and traded in markets
totally removed from the commodity world. We need a third equation: M-M-M′.
Financialization has several consequences from mind-sets to the structural drivers of development: the importance of financial motives and motivations increases
in line with the influence of financial institutions, elites and markets in governing
institutions. Big parts of the financial system today have lost any resemblance to the
fiduciary role that Tobin foresaw. Trillions in desperate liquidity chase around the
globe in search of good returns while money for development aid, climate protection or refugees cannot be found.
Meanwhile, the expectation of a constant return on each investment leads to
compound interest developments that are simply absurd if one takes the long view
of future generations. Garrett Hardin (1915–2003), a famous American ecologist,
gave an example in 1985:
Suppose that the thirty pieces of silver Judas received for betraying Christ had
been worth $30; and suppose that he had put this into a bank account bearing 5 %
compound interest, payable in gold. Presuming the present price of gold, the initial
capital would amount to 2.5 grams of gold. How long would it take for the Judas
Account to be worth a weight of gold equal to the weight of the entire earth
(5.983 × 10
27 g)? Just 1292 years (Hardin 1985: 72).
3.3.3 Summary: Opening up Mainstream Economic Ideas Is
Key for ‘Our Common Future’
Section 3.3 highlighted how the ideas and concepts summarized in Table 3.1 are
among the root causes of financialization and its utterly unsustainable patterns of
exploitation, allocation and accumulation. It showed what gets lost if these concepts
provide the explanations and evidence for sustainability policymaking. Most
importantly, it highlighted how the mind-sets and narratives building on these
3.3 How Mainstream Economics Anticipate the Future
111
effect paid for abstaining from the immediate utility gains that using the money for
consumption would have brought, had he not lent it to someone else. Others would
say that interest is necessary to incentivize paying back, and a justified premium for
the risk involved in lending it to others.
All of this might have been true in times in which shareholders were also
stakeholders and typically longer-term investors. Today, the vast majority of stocks
are held by sharehoppers. Buying and selling within seconds is not really taking
part in the entrepreneurial risk of a business. The traders doing it do not care what
the companies do. Their algorithms track price developments and seek to gain from
differences at times of purchase and selling. Whether the companies flourish or tank
does not matter to them.
It does not come as a great surprise that profit making increasingly occurs for
those inventing more and more financial instruments or ‘products’ like derivatives,
credit default swaps, futures and options that are exchanged and traded in markets
totally removed from the commodity world. We need a third equation: M-M-M′.
Financialization has several consequences from mind-sets to the structural drivers of development: the importance of financial motives and motivations increases
in line with the influence of financial institutions, elites and markets in governing
institutions. Big parts of the financial system today have lost any resemblance to the
fiduciary role that Tobin foresaw. Trillions in desperate liquidity chase around the
globe in search of good returns while money for development aid, climate protection or refugees cannot be found.
Meanwhile, the expectation of a constant return on each investment leads to
compound interest developments that are simply absurd if one takes the long view
of future generations. Garrett Hardin (1915–2003), a famous American ecologist,
gave an example in 1985:
Suppose that the thirty pieces of silver Judas received for betraying Christ had
been worth $30; and suppose that he had put this into a bank account bearing 5 %
compound interest, payable in gold. Presuming the present price of gold, the initial
capital would amount to 2.5 grams of gold. How long would it take for the Judas
Account to be worth a weight of gold equal to the weight of the entire earth
(5.983 × 10
27 g)? Just 1292 years (Hardin 1985: 72).
3.3.3 Summary: Opening up Mainstream Economic Ideas Is
Key for ‘Our Common Future’
Section 3.3 highlighted how the ideas and concepts summarized in Table 3.1 are
among the root causes of financialization and its utterly unsustainable patterns of
exploitation, allocation and accumulation. It showed what gets lost if these concepts
provide the explanations and evidence for sustainability policymaking. Most
importantly, it highlighted how the mind-sets and narratives building on these
3.3 How Mainstream Economics Anticipate the Future
111