A free market capitalism or a speculative market capitalism?

Abstract

PurposeThe purpose of this paper is to explore the interaction between the economic and political imperatives of new monetarism. The breakdown of the global derivatives markets, which came into the spotlight during the 2008/2009 global debt crisis, brought up the issue of trust. The matter at hand is the loss of trust in investors' ability to make informed decisions, but trust in the self‐regulating capacity of open markets has also been seriously shaken.Design/methodology/approachRelying on Roche and McKee's analysis of the global financial crisis, the author emphasizes that new monetarism is not a new paradigm, but rather a result of economic circumstances. Although the growth of financial asset prices was indeed partly a result of the liberalization of financial markets, the decisive factor is to be found in the creation of new financial instruments. On the one hand, derivatives have drastically increased the “investment power” or “purchasing power” of money. However, on the other hand, derivatives are a form of under‐appreciated liquidity that creates bubble assets.FindingsOver the last two decades, the value of global financial assets has grown much faster than the real economy in its background, which means that in the era of new monetarism, financial markets set the tone of the real economy. Consequently, in the eyes of investors, the crucial term becomes “liquidity”, rather than “real economy”. As disinflation multiplied the value of financial assets, central banks progressively lost control of money. Players in financial markets that had increasing trust in cheap money started to introduce new forms of money, which allowed them to create liquidity, independently of the central bank. It has been shown that the quantity and cost of money available for investment can be frozen up to a point where it threatens the global financial system.Practical implicationsNetworks for promoting social responsibility of the corporate sector, which more and more tightly cover our small planet, wish to make transparent the connections between corporate leaders, politicians and organizations to which they are connected. Their members conduct research with the aim of making the invisible power of money visible.Originality/valueNew financial democracy in the post‐modern era presupposes financially literate citizens, which without a doubt presents a challenge for education systems, which will evidently have to incorporate a new, crucial form of literacy, in addition to linguistic, mathematical and computer literacy – financial literacy.