Norfield, who has a PhD in Economics, has written this article for those who have a little more advanced understanding of economic issues such as how bank create money out of nothing through loans (and charge interest on it) and some familiarity with financial derivatives. It is directed at reformers of the capitalist system who argue that finance, more specifically, banking institutions are the problem, and thus nationalizing the banks is the solution. We as developing revolutionaries must gain an understanding of how capitalism functions if we are not to be diverted down paths which merely lead to reforms of the exploitative and chaotic system.
The financial system accentuates all the absurdities of capitalism, but it does this in a way that can make finance appear to be separate from the capitalist economy, rather than an inevitable outgrowth from it. Almost every observer of capitalism makes a distinction between the ‘real’ and the ‘financial’ economy. Even those who would claim to be anti-capitalist often advocate policies to save the capitalist economy from the vagaries of disruptive financial markets.
A division between a ‘real’ and a ‘financial’ economy can seem to make sense, especially given the extravagant rewards of financiers who seem to perform no function other than to boost their own incomes and wealth. A closer look at how the capitalist economy works, though, throws a very different light on what is happening. We need to recognise that the global economy is dominated by a small number of countries and their corporations – and that the financial system is a means by which they maintain their privileged status in the world.