Tuesday 30 April 2013

The Financial Economy

The Financial Economy

The financial economy is that part of the economy that is based not on the creation of goods or services but on the movement and creation of money. Minting or printing money is part of the real economy not of the financial economy because it is the creation of a good that is used in the real economy. Finance is the stock market, banking, the housing market the areas of the economy were by investment and speculation live side by side. Investment is a means of providing future wealth through the prudent use of money to help a business grow or at least have the potential to grow. 

But speculation is something different, it is anything but prudent, it is taking a guess on what will make money. Worst of all it hates doing wrong by itself and those who speculate encourage others to join in. One example is to encourage people to invest all of their investment in one stock, a particular favourite is to invest in housing or apartments. There is no prudence shown here, by either party it must be said, although the investor may be forgiven if they are ignorant of the true cost of such an “investment”. They are rarely shown the true nature of such speculation.  

Why am I making such a fuss about speculation? Because it seems that ethics in finance can be quite fluent, more than once have I heard the battlecry “but everyone's doing it!”, in other words how can it be wrong as it is now the industry standard. No matter how low that standard has become. 

The real problem with the financial economy is that it has no other standard of success than making more money. It is not concerned with social or political stability, unless those things harm the financial economy. It is also true that many people, institutions, charities, businesses and Governments rely on the financial economies success. Government should not be reliant upon the financial economy as it should have it’s own reserves to call upon. 

Every great economic crisis of the past two centuries has been caused not by the real economy but by the financial economy, normally by it giving out more credit (loans) than could ever be paid back. A self- created pyramid scheme. There is no need for this to be true, if the financial economy took as it’s motto the word “prudence” it would be very hard for these excesses to happen, let alone keep happening. Only when Governments, financial professionals and investors take their responsibilities seriously can we be protected from the excesses of the financial economy.

Upon Hope Blog - A Conservative Future

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