How wealth dies

Summary

THE NOTIONAL VALUE TRAP Foreword Just as growth in the “real” economy of material products and services has been decelerating towards contraction, so aggregates of financial wealth have carried on increasing relentlessly. Since the widening disequilibrium between the monetary and the material must eventually crash the financial system, the probability is that notional wealth will reach its peak at the same moment at which the monetary system collapses. We can see this unfolding effect in microcosm in the United Kingdom, where the most recent official calculation put national “net worth” at a near-record £12.2 trillion, or 450% of GDP. Yet you don’t need SEEDS analysis to know that the British economy itself is at an advanced stage of disintegration. Two key factors explain the apparent paradox between soaring wealth and the onset of increasingly chaotic economic decline. First, every failed effort made to stem material economic decline using monetary tools increases wealth, as it is measured financially. Second, most of this wealth is purely notional, in the sense that none of its aggregates are capable of conversion into material value. Put another way, very little of the world’s supposedly enormous wealth actually exists in any meaningful sense. A very possible final scenario is that, after an initial correction caused by a dawning realization of economic crisis, asset markets will rebound to a last peak before entering outright collapse. To make sense of these issues, we need a clear understanding of the nature of money and wealth in relation to material economic supply. 1 As many readers will know, there’s no great mystery about the ending and reversal of material economic expansion. Briefly stated, the “real” economy of physical goods and services is only proxied – and with ever-diminishing fidelity – in the published aggregates of financial flow. Far from being a measure of the supply of material value to the system, gross domestic product is nothing more than...