Our Leaders Are Mistaking the Modern Money System for a Fistful of Dollars – Part 1

By Michael Hoexter

When looking down at earth from space, you would be able to see the shapes of continents and even, if you are aware of geological history, the way, for instance that Africa and South America fit together as they were once part of the same mega-continent.    When living on the surface of the earth, as we most often experience it, one gets an entirely different perspective in which the individual contours of the land, vegetation, buildings, and coastlines look much larger and have different proportions relative to the viewer.  Both perspectives are real and equally valid but in each, different information is revealed or becomes salient to the viewer/participant.

With social systems like money and the economy, there are likewise differences in salient information depending on the scope of the analysis and the standpoint of the observer, which in the academic discipline of economics, long ago, was reflected in the distinction between micro- and macroeconomics.  The economy looks differently from the perspective of an individual economic actor in contrast to the perspective of a national government, especially with regard to trends in large group behavior, sometimes called “aggregate” trends as well as with how money appears to each of these broad classes of economic actor.  Macroeconomics, currently marginalized within the academic hierarchy of economics, is the study of aggregate phenomena and trends.

One of the founding discoveries or re-discoveries that led to the formation of the discipline of macroeconomics was Keynes’s application of the concept of the “paradox of thrift” to the downward spiral of the economy during the Great Depression.  Within the paradox of thrift, first observed during ancient times, from the perspective of each individual economic actor it made sense during a sharp downturn of the economy to pay off debts and/or save as much money as possible yet this activity in aggregate led to reduced incomes and greater impoverishment for all.  From that different-than-individual, group or aggregate perspective, those with an overview of the economy and a will to improve overall social welfare entered into a search to find a way to increase the overall liquidity of the economy, the velocity and quantity of money and goods changing hands, so that economic activity would once again pick up.  Modern macroeconomic management, often called “Keynesian”, emerged from policies that more or less succeeded in overcoming the effects of the paradox of thrift.  Macroeconomic management, including the ability to short-circuit such downward spirals in the economy, requires the assumption of a national perspective that is not reducible to the perspective of any one private actor.

Fiat Currency and Macroeconomic Management

One of the components of macroeconomic management recommended by Keynes but theorized only later by Modern Money Theorists, was ending the gold standard and transitioning to a fiat currency.  A fiat currency is a money system that was designed to provide adequate liquidity to the economy to produce politically-acceptable levels of growth and full or politically-acceptable levels of employment without causing adverse effects like excessive price inflation from the demand side.   Fiat currencies are money created by “fiat”, by government command or initiative.  While fiat currencies and the fiat element of all money itself have existed from the time government-issued money was invented, since the 1930’s a consensus gradually emerged among economic observers which still holds that the gold standard created unacceptable rigidities in the supply of money, leading to depressions and economic misery caused by the monetary system itself.  Despite the enthusiasm for a return to the gold standard among some “Austrian” economic philosophers and the right-wing fringe, no one who analyzes the dynamics of the economy using real world data recommends the return to the fixed or arbitrarily limited stock of money that the gold standard would require.

The process by which the gold standard was at first breached and then completely rejected was not formalized or enshrined within the structure of neoclassical economic theory, the economics taught in colleges and in graduate schools.   Neoclassical economics tends to treat money as just one of many commodities that is traded for other commodities, so the formal change from the gold standard to fiat money did not register within the basic model of how economies work, absorbed by millions of students per year throughout the world.  Gold, after all, is a commodity, so it would seem “reasonable” within neoclassical economics that money, another commodity, would be tied to gold.  Critics of neoclassical economics from the Post-Keynesian school claim with good reason that the dominant school within economics has no theory of money at all.  Instead the nature of money has been treated as side issue, a matter, for the most part of the less prestigious sub-discipline of economic history or dismissed entirely as not worthy of study.

The path to the current regime of fiat currencies has been then one that has arisen from the practical experience of governing during times of economic crisis with additionally a minority of economists providing during and after the fact a theoretical framework to understand the move to a fiat currency. Historically leaders who have sought the freedom to address the real economic challenges they faced, often out of necessity rejected the use of metals or a metal standard to issue purely fiat money at first temporarily (Lincoln’s Greenbacks during and after the American Civil War, Roosevelt suspending the gold standard during the Depression).  In the category of “not-quite fiat” currency, populist campaigners against the gold standard, like William Jennings Bryant advocated bimetalism (adding silver to gold) as a means to increase liquidity and price inflation in a deflationary environment and lighten debt loads of poor farmers.  Nixon’s closing of the gold window and the US’s withdrawal from the Bretton Woods system, leading to the current fiat currency era did not originate in economic theory but was a response to a liquidity crunch in the early 1970’s, brought about by the costs of the Vietnam War, social spending, and a mounting US trade deficit.  Abba Lerner’s functional finance and later Modern Money Theory (MMT) have been the theories of fiat currency which have as yet not been self-consciously utilized within government policy or integrated into the mainstream economic teaching which still views money as a commodity among other commodities and not what it has been now for many years, a fiat public monopoly.

Capitalism’s Chronic Liquidity Shortage

While capitalism is the object of fulsome praise by many, supposedly neutral, economic commentators, as an economic system it has flaws, though some forms of capitalism with a substantial public sector seem to be the most successful economic systems that are currently in existence.  Without recognition of defects in capitalism, it is almost impossible to design a program of sound macroeconomic management as these inevitable flaws are treated as non-existent and are therefore ignored.  The current dominant neoliberal political-economic ideology is of the type of approach to capitalism that bathes unregulated markets in a positive, unrealistic glow rather than realistically recognizing their weaknesses. President Obama is, as are many other contemporary world leaders, ensconced within the neoliberal worldview that celebrates markets while it deprecates government’s role in the economy.  Therefore he is inclined to view laissez-faire capitalism through rose-colored glasses, which in many ways explains the Administration’s misassessment of the collapsing economy in 2008-2009 and the premature relaxation of its response to the Great Recession in the following years.

One of the most obvious problems of laissez-faire capitalism observed by both those who seek to overturn capitalism and those who seek to reform it, is that capitalism on a systemic level suffers from chronic shortages of (monetary) liquidity as a feature and not an accident of history.  The financial goal of capitalists, investors, and many wage earners, if they earn enough, is to save receive in payment more money than they spend, accumulating money in bank accounts or their equivalent.  These savings take money out of circulation, which slows and eventually shrinks the economy, reducing its overall liquidity.  This is the dynamic of the paradox of thrift, which is not only applicable to downward spirals of the economy but is also a secular problem of capitalism more generally.   In addition, capitalism requires continual increases in labor productivity by replacing human labor through machines powered via non-food energy, of either renewable, nuclear or fossil provenance.  These increases in productivity tend to lead, without a strong countervailing egalitarian ethic or movement, to decreases in the proportion of income that is distributed through wages, that method of distributing income which benefits those who are most likely to spend money.

Associated with the propensity to save and increasing returns to capital rather than labor is then increasing inequality, which further undermines effective demand, an outcome of inadequate distribution of liquidity throughout society.  Liquidity becomes maldistributed, concentrated among those who tend to save more, the wealthy, because their basic needs are met and liquidity becomes increasingly drained from those sectors of society that have greater needs and enter into a vicious cycle of poverty and increasing debt.  Effective demand is thus undermined.  Therefore, while it is frequently categorized as purely an ethical issue or a matter of personal political preference, increasing economic inequality endangers the entire economic system, as effective demand for real goods and services is reduced and the economy turns increasing to gambling on asset values and the creation of a Ponzi economy.

The secular, long-term trend of increasing maldistribution of liquidity and its concentration among the wealthy is obscured and also exacerbated by the cyclical dynamic of increases and decreases in private lending and loan repayment.  Peaking and collapsing with the business cycle, private loans from banks and other entities inject liquidity temporarily into the economy that is then withdrawn upon repayment of the loans plus interest.  The net effect across the business cycle of private lending is to distribute liquidity (money) upwards and into an increasingly bloated financial sector.  Furthermore with the collapse of lending in a bust, the withdrawal of liquidity from the economy is further exacerbated by the increased ratio of loans being repaid rather than being advanced in the first place (net deleveraging).  In a downturn, this process can have devastating impacts on the less advantaged, who can be forced into penury, homelessness and/or debt servitude by decreases in income and the debts taken on in previous better times.  The private debt cycle further destabilizes the economic system, especially if it is not strictly regulated.

 

36 Responses to Our Leaders Are Mistaking the Modern Money System for a Fistful of Dollars – Part 1

  1. Tnx for the articles, but I have a different plan a bit…
    - adjudicate each case of fed printing for 100 years for validity of invested funds, not from thin air or illegal funds,
    and prosecute accordingly with jail time and forfeiture like Iceland, etc.
    - Do NOT pay of the national debt as it comes due, but follow the above…NOT Kucinich’s HR6550/2990/NEEDS
    - Us National bank issues money without debt for it’s bills when there is not enough tax and fee revenue under
    strict scrutiny by all branches of gov., and the states with their powers of nullification also in force to whit.
    - Private and public banks would compete for validity, with private enterprise being given first preference if they
    held to federal and state statutes for the sake of the American private enterprise system
    - these banks would apply for loan money to the federal central bank for the no-debt money
    - They would pay back the principal as it came due and paid so it could be used by the federal gov. for it’s bills
    - that way taxes could be reduced, and the system benefits at both ends ! ……..thoughts ?

  2. I have read several bodies of work -outside of MMT- that have provided strong evidence that the culprit is Compound Interest -Usury. It would be interesting in seeing a model that removes Compound Interest from the economy, a model that assumes no usury of any level.

    • Yes, any type of interest should be well regulated and properly divulged beforehand and so applied without hidden clauses that often trap the unwary, trusting public. I recently dumped my Citi card which went from 9% to 29 % in one month, paying the whole balance at once, and they still “pursued” me for a while with fees that were not proper, and finally won by not paying them ! BUT, the big gorilla is the creation of principal from thin air, that the fed does, which should be a government function which is right in the Contstitution; art. 1, sec. 8; par. 5, 6… BTW, counterfeiting is what is congressionally condoned, like the recent insider trading scandal of Pelosi, etc. The fed comes up for renewal this year I believe…what a chance to dump ‘em ! Tell your congressmen !

    • The US government always borrows money from the banks to cover its yearly deficits. The banks create this money out of thin air. As collateral for these loans, the US Treasury gives the banks interest bearing Treasury Bills. If there were no interest attached to the T Bills, the banks would not buy them, because there would be no profit in it.

      The problem with this arrangement is that more money must continually be created as debt in order to pay the interest. This leads to an exponential growth in the money supply, that we experience as inflation of the currency, which reduces its purchasing power.

      The longer term problem is that since all money is created as debt, the debt can never be paid down.

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  4. Regarding:

    “Liquidity becomes maldistributed, concentrated among those who tend to save more, the wealthy, because their basic needs are met and liquidity becomes increasingly drained from those sectors of society that have greater needs and enter into a vicious cycle of poverty and increasing debt. Effective demand is thus undermined. ”

    If you keep up with Paul Krugman, you will know that Milton Friedman debunked this “underconsumption” hypothesis ages ago. It’s just a “statistical illusion”, apparently. I’m completely serious.

    See:http://www.cepr.net/index.php/blogs/beat-the-press/krugman-versus-stiglitz-on-inequality-and-economic-growth

    Read it and weep.

    • Yes, there is major confusion here, thanks to the vagaries of neoclassical economics. Krugman is sometimes spot on often for the wrong reasons, but in this case you see the deficits of neoclassical on full display, complete with unrealistic counterfactuals.

    • I hope you’re being sarcastic. Freidman was a sophist, for the record, not an economist. He also claimed to “prove” that marginal utility of income was higher for the wealthy than for the poor, i.e. that income, unlike everything else, becomes more valuable the more of it one has!

      Anything Freidman has said or written is best taken with a bag of salt (and a fifth of Jack).

  5. Looking down at earth from space, I see that human beings now dominate most of the planet. Over the last few centuries, they have changed the surface by cutting down forests and turning it into farmland to provide more food, which had led to almost exponential population growth, placing even more demand upon the land to produce more food.

    Some people are busy digging holes in the ground for metals and minerals needed for the production of machines, which make transport, communication and production of goods more efficient than ever.

    What is puzzling, is that the the vast majority of people live in poverty, while there is a very wealthy elite who fly around the world in private jet planes, employ servants to cater to their every whim, control the money and the political system.

    From a societal point of view, things have not changed much since the days of the Pharaohs of ancient Egypt, when the vast majority toiled to build the pyramids for them in return for some bread and the overseer’s lash.

    Why is it that the benefits of progress are distributed so unevenly ?

    • “things have not changed much since the days of the Pharaohs of ancient Egypt, when the vast majority toiled to build the pyramids for them in return for some bread and the overseer’s lash.”

      Looking at the entire world, this would seem to be correct, which would mean that inequality is fairly constant over time, not increasing.

      Looking just at the US, wasn’t there more inequality in the days of Rockefeller and Carnegie? In “The Jungle”, Upton Sinclair described living and working conditions, and wage levels, in 1904 Chicago that are much like third world countries today, or even the slaves in ancient Egypt. The vast majority toiled arduously under dangerous, life-shortening, and sometimes fatal conditions, for very little, to build vast fortunes for the very few. And yet today, in America, despite the woes of the last few years, most of us live comfortably, if not as well as the few who live luxuriously. Even the poor in America are far better off than the average in many parts of the world.

      According to Wikipedia, the GINI index in the US was falling from 1947 (first data) to 1967. If one were to investigate inequality in the US, I think one might start by asking what large economic changes began around that time. And then one might wonder what the GINI index was in 1904, or 1854, and how it has changed since then. It might be very difficult to make the case that the capitalist system itself is the cause of increasing inequality since 1967.

    • Excellent.

      “Collapse.” coming to a species near you. Relatively soon.

  6. “no one who analyzes the dynamics of the economy using real world data recommends the return to the fixed or arbitrarily limited stock of money that the gold standard would require.”

    But, isn’t that what they did when they created the Euro? A system with an arbitrarily limited stock of money.

    • “But, isn’t that what they did when they created the Euro? A system with an arbitrarily limited stock of money.”

      Not quite, the European Central Bank creates money as debt by selling bonds. The limitation seems to be the extent to which they are willing to sell more bonds or create more debt. The problem for the countries who subscribe to the Euro currency is that they lost control of their money supply. A comparison might be with each of the 50 States in the US, who have no authority to create money and the US Treasury can only create money as debt by borrowing from the banks. I am not sure who owns the ECB, although there are claims that it is jointly owned by European governments., but if this were so, there would be no need for the ECB to go into debt in order to create money.

      • I thought it was the individual country governments that sold bonds, and the ECB (only lately) has been buying them. Anyway, I deliberately said “arbitrarily limited” not “fixed or arbitrarily limited”, because the rules limit the amount of bonds that the countries can sell (their version of the “debt limit”), as well as the activities of the ECB.

        It’s quite true, BTW, as all readers here know, that the individual EU countries, like US States, are not monetarily sovereign.

  7. “The financial goal of capitalists, investors, and many wage earners, if they earn enough, is to save more money than they spend”

    I think very few would want to save more money than they spend. That would be a savings rate of over 50%, which is unlikely for most. I think most simply want to earn a little more than they spend, during their working years, because they know that when they are done working, and no longer have any earnings, they will want to continue spending.

    • Golfer,

      I think that Derryl Hermanutz answered this point quite well, when he wrote on January 13, 2013 at 8:15 pm

      “You’re essentially asking about what Keynes popularized as “the paradox of thrift”, also known as “fallacies of composition”. It’s where behavior that is beneficial for individuals is harmful to the system as a whole. In a zero sum system such as “money”, saving the money you earn is good for you personally, but saving starves the system of spending. Your spending becomes someone else’s earning, just as their spending became your earning. It’s a problem of stocks and flows, an “accounting” problem. It’s not economics. It’s basic arithmetic. It’s exchanges and accumulations of numbers with a $ sign in front of them.”

      The concentration of wealth, as more billionaires make it the the Forbes List, literally starves the real nuts and bolts economy and we have the Great Recession. The Great Depression of the 1930s was also the result of extreme wealth concentration.

      • Frank,

        I think you totally missed my point, but Michael got it.

        As to your point, the bad effects of the paradox of thrift should be offset by proper government fiscal policy. There is no need for private sector savings to decrease aggregate demand, as long as net government demand is adequate.

    • Sorry, yes. I intended it to mean as you say, that people earn enough so that they have a surplus.

      • When people save some of their earnings, they have various choices as to where to invest. They can for example put the money in a savings deposit at a bank. This increases the assets of the bank, so that the bank can then lend out say ten times the amount of the deposit, which injects more money into the economy. The problem for the saver is that his rate of return is likely to be less that the rate of inflation of the currency.

        This is why many people invest in mutual funds in order to come out ahead, although this is not a guaranteed outcome. People often think that they are “investing” in the stock market, when they buy shares, but the money does not flow to the corporation; it flows to the last person cashing in his chips. It thus becomes a form of gambling or speculation rather than investing. Trading in the currency and commodity markets is pure speculation.

  8. “While capitalism is the object of fulsome praise by many, supposedly neutral, economic commentators, as an economic system it has flaws, … these inevitable flaws are treated as non-existent and are therefore ignored. The current dominant neoliberal political-economic ideology is of the type of approach to capitalism that bathes unregulated markets in a positive, unrealistic glow …”

    I’m not sure exactly what economic theories are described as “Austrian” or “neoliberal”, but I know that the economics I was taught in the late 1960′s and early 1970′s clearly stated that capitalists detested free markets, because the ideal free market would reduce their economic profits (what you call economic rents here) to zero. Capitalists want a monopoly market, if they can achieve it, and at least an oligopoly if not, so that they can raise prices and profits by limiting their own production, or by collusion with other producers to limit production. (Adam Smith famously said “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public”.) Even today, OPEC was formed and continues in existence for that very reason. They may be the only true “laissez-faire” capitalist market in existence. All the rest are regulated by governments, ostensibly to try to prohibit such behavior. In the US, collusion among producers is a crime, and the only monopolies that survive are those sponsored and protected by the very government that is supposed to protect people from them.

    Don’t conflate “free market” with “laissez-faire capitalism”. They are very different concepts, neither of which exist in the real world, and so neither of which can be blamed for any ills that may befall us. We live in a regulated capitalist world, and if the regulations are not optimal it is the regulator who is to blame, not the capitalist.

    • The stock market provides a means to monopolise various business sectors by the use of mergers and acquisitions, whereby large corporations swallow up smaller ones by buying the target company’s stock with either cash or the buyer’s stock.

      It does not result in a total monopoly these days, but essentially a few large players are left in the game, who can easily determine their competitors prices. There does not have to be covert collusion in order to figure out that market share and profits can be maintained by keeping your eyes open. Of course, timing is everything and it separates the astute from the merely greedy.

      • I think the players are able to get larger today mainly because of technology and communications. They now have the entire world population as potential customers, not just their neighbors in town. Buying up competitors is regulated, supposedly. AT&T was just prevented from buying T-Mobile, if I remember right. Maybe we need to get more vigilant about that sort of thing.

    • What you are describing are for the most part the attitudes of most “Austrian” economist adherents. They are for a never-existing free-market and for a laissez-faire trend in government policy. They condemn monopoly and mercantilism as did Smith. They believe however that there are or could be virtuous capitalists who want to be in such a free market and there are prominent CEOs like John Mackey of Whole Foods who think that such free markets have either existed or should exist. They subscribe to a delusional economics, one that obliterates the past and, if it has enough adherents in the present, can endanger the future. They are basically anti-cooperation, which to them is always collusion and corruption. They think that the state of nature is or should be only competition.

      • Generally, the bigger the company, the less competition there is, since large companies have a policy of gobbling up smaller companies in order to increase market share and also eliminate a competitor. Small and medium sized companies find it tough to compete with larger ones in the same field of endeavor, because they find it hard to survive price wars. Additionally during any business slump, they usually have less cash on hand to see them through.

        The incentive for small companies to sell out are that the owners can take a capital gain, which is taxed at the lower rate of 15% rather than pay personal income tax.

        Smaller companies also find it difficult if not impossible to obtain bank loans, which could be used for expansion and funding of inventory. While larger enterprises can sell bonds and negotiate credit lines with the major banks.

        • I would say that by definition, the bigger the company, the less the competition. One would hope that the reason they got big is because they had a better product or lower prices or both. Gobbling up competitors should be restricted by government. If it is not, that is the fault of the government, not the gobbler or the gobblee.

          Sometimes a side effect of bigness is complacency. Some very large companies have fallen to smaller competitors because of that. And others would have fallen, except for government protection.

          Sometimes big companies provide a big umbrella for smaller competitors. I found it very easy, when I was the smallest of the small, to compete with the biggest of the big, because my overhead was so much less. I charged half their hourly rate and made twice what I was making when I was their employee.

      • I would rely on the rule of law rather than individuals’ virtue to discourage harmful behavior. Just because the perfect free market doesn’t exist doesn’t mean we should not strive for something close to it, rather than something in the opposite direction. The closer we get to a competitive market, the lower are consumer prices and producer profits.

        As for laissez-faire trends, I think it was a good thing that government stopped regulating prices of airline tickets and natural gas, a bad thing that they failed to regulate or stopped regulating certain banking practices. There must be a happy medium.

        • The Us Congress makes the laws, but they have been bought off by monied interests. The lobbyists actually draft the legislation these days, while the Senators are busy fund raising.

        • I think we are standing at a point in history where the market as an ideal has been oversold. We need to recognize how we can cooperate as well as compete with each other. I realize this goes against 40 years of indoctrination but without high levels of cooperation on an international scale, we will not be able to survive or at least thrive as a species.

          • Cooperation is good, too. There are many examples in nature of symbiotic relationships. It is not necessary that non-competitors should not cooperate, and it happens all the time. International cooperation is far preferable to international war, and by encouraging trade (which requires permission to compete) we make war less likely. But I would not like the result if AT&T and Verizon suddenly got all cooperative with each other.

            • I’m not talking about collusion between corporations.. Government for the most part represents the cooperative principle, while you are right that cooperation between very large and powerful corporations can endanger democracy. I don’t think we have yet developed a sophisticated enough understanding of what economic activities should be part of the competitive market sector and what should be part of the public or the highly regulated public utility sector.

              • Ah, now I see.

                What is the benefit of taking something the private sector can and does do voluntarily and turning it into a public monopoly, designed and run by Congress — oh, excuse me, by the lobbyists for the industry that will reap the monopoly profits from it? I think it’s OK for government to offer an alternative, and if they can do it so much better and cheaper the private sector will withdraw. You don’t need a sophisticated understanding of what “should be”. Just look at elementary education, for example. Government offers it at zero cost to the participants, and yet millions prefer to pay private sector providers. That’s not necessarily a bad situation, except government should be doing a much better job in poor neighborhoods.

                • Perfection is not guaranteed, whether the enterprise is in the public or private sector. However, there are some things best left to governments and others to the private sector. This does not mean that they have to be mutually exclusive as you note.

                  I grew up in the UK, when at the time there was a socialist government in power. As a result I was able to enjoy free at the point of service medical care, dentistry and free education to university level. Rail and road transport were nationalized. British Rail performed quite well in my view and at a reasonable price. Road transport would have probably been best left to private companies. Electric power was a national grid and again inexpensive. Steel and coal were also nationalized with mixed results. Successive Tory governments have endeavored to dismantle the state sector with highly questionable results so far.

                  The US by contrast seems to have most of its industry for profit in the private sector, again with mixed results, notably an expensive health care system, which is unsatisfactory.

                  I came across this article by Albert Einstein in 1949, entitled “Why Socialism”

                  http://monthlyreview.org/2009/05/01/why-socialism

                  where he proposed that human society has not yet evolved from a primitive stage of development. His view was that the predatory nature of capitalism needs to be mitigated by some form of socialism.

                  • Ha-Joon Chang wrote in his book “23 Things They Don’t Tell You About Capitalism:”

                    Between the 1930s and the 1980s. . . .Several of them (especially France, Austria, Finland, Singapore and Taiwan) used state-owned enterprises to promote key industries. Singapore, which is famous for its free-trade policies and welcoming attitudes towards foreign investors, produces over 20 per cent of its output through state-owned enterprises, when the international average is around 10 per cent. . . . Singapore is also one of the five most industrialized economies in the world . . . . However, in the last three decades, finance has become the proverbial tail that wags the dog. Financial liberalization has made it easier for money to move around, even across national borders, allowing financial investors to become more impatient for instant results. As a consequence, both corporations and governments have been forced to implement policies that produce quick profits, regardless of their long-term implications. Financial investors have utilized their greater mobility as a bargaining chip in extracting a bigger share of national income. Easier movement of finance has also resulted in greater financial instability and greater job insecurity (which is needed for delivering quick profits).

                    Finance needs to be slowed down. Not to put us back to the days of debtors’ prison and small workshops financed by personal savings. But, unless we vastly reduce the speed gap between finance and the real economy, we will not encourage long-term investment and real growth, because productive investments often take a long time to bear fruit.

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