Wall Street’s Zero Sum Game: Phantom Wealth

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As part of the New Economy 2.0 series 

 

By David Korten

In business school we were taught to assess investment options to maximize financial return. I don’t recall that the professor ever mentioned this meant maximizing returns to people who have money—to make rich people richer. Or that money is a system of power and 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 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 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 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.

It is easy to confuse phantom financial assets with the real wealth for which they can be exchanged. Indeed, the illusions of phantom wealth are so convincing that most Wall Street players believe they are creating real wealth.

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.

Those who benefit from the creation of phantom wealth may never realize their gain is unfairly diluting everyone else’s claim to the available stock of real wealth. They may also fail to realize 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, resources, 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.

About David Korten

David Korten (livingeconomiesforum.org) is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group and a founding member of Business Alliance for Local Living Economies (BALLE).

About New Economy 2.0 

Visionary economist David Korten introduces a national conversation series, New Economy 2.0, on CSRwire Talkback based on his acclaimed book, Agenda for a New Economy, 2nd edition. For the next several weeks, Korten will summarize the main points and key lessons of each chapter of his book, leading from a dissection of what went wrong in the “phantom wealth Wall Street economy” to the presentation of a vision of a world of real wealth Main Street economies that support strong middle class societies, honor real market principles and work in partnership with Earth’s biosphere.

New Economy 2.0 envisions an economy in which life is the defining value and power that resides in people and communities. It contrasts with the popular New Economy 1.0 fantasy of a magical high-tech economy liberated from environmental reality and devoted to the growth of phantom wealth financial assets.

This exciting, new series is co-published by CSRwire and YES! Magazine.

The arguments presented here are developed in greater detail in Agenda for a New Economy available from the YES! Magazine Web store.

Talkback Readers: Does Wall Street deal in real or phantom assets? Tell us your thoughts on Talkback!