Now that it is becoming hard to avoid just how much trouble the global financial system is in, it is interesting to speculate about what should be done about it. It is not for a second being suggested that this is what will actually happen.
There is zero likelihood that the participants in finance, including the regulators and especially the private actors, possess the good sense and insight to do the right thing. If good decisions are made it will be by accident, not because of sound thinking. Still, sketching out where things should go takes us down some intriguing pathways.
The first thing to understand about the global financial system is that the assumptions that were used to shape it are demonstrably false. In the 1980s all Western countries engaged in a process called ‘financial deregulation.’ It was, literally, nonsense. Money is rules and rules cannot be deregulated. As Aristotle commented, money ‘exists not by nature but by law (nomos).’
Put another way, money is a transaction. The word transaction means ‘an action across’. What is the action across? The answer is the rules to which both parties assent, which makes the exchange possible.
It is hard to know whether those pushing ‘deregulation’ were captured by their own metaphors or were being disingenuous because it was highly profitable to do so. It scarcely matters.
What this error has meant is that all subsequent analysis and policy formation relating to the financial markets have been based on a nonsensical assumption. The picture of humanity as a ship of fools seems especially apt.
'There needs to be a clear-eyed understanding that money is rules and the only salient questions are: who gets to set those rules, and what constitutes good and bad rules?'
We are now in the absurd position where those who are most responsible for the problems facing the financial markets, the private sector, are blaming those who abrogated their responsibility by leaving the game when it was their job to oversee it: governments. Thus we endlessly hear demonisation of ‘fiat currency’, especially from cryptocurrency fanatics. The argument is that, since America went off the gold standard in 1971, the core problem is that money is determined by government fiat, or edict.
That analysis is exactly the opposite of what occurred. Because of financial deregulation, governments handed over the creation of most of the money in the system to the private sector. That is, governments stopped issuing fiats, especially over the