A+| A| A-

The Pandemic Closing In on the World of Finance

Real versus Fictitious

The COVID-19 pandemic is stretching the contradictions of the present economic arrangements to the limits. The system survived inflating financial assets and feeding on inequalities. The divide between the real economy and the sphere of finance cannot be left unchecked without risking an economic catastrophe. Wealth and income inequalities cannot be pushed anymore without irretrievably damaging the underlying social contract. The virus is making change inevitable.

“Fair is foul and foul is fair,” so said Shakespeare’s three witches. In the same way, the current times are characterised by the confusion bet­ween the real and the fictitious. Financial assets are, at best, claims on real things. They are fictitious assets because they are of no intrinsic value; they are useful only by virtue of their ability to command real assets and goods and services that can satisfy human wants. The stock of financial assets has been growing faster than real things they represent over the many decades. But, the gap has widened alarmingly in recent years. For instance, the ratio between market capitalisation of listed domestic companies and the gross domestic product (GDP) in the United States (US) increased from 52% in 1990 to 148% in 2018 (World Bank 2020). The growing divide between the real and the financial has also been a major source of wealth and income inequality in most nations. The overaccumulation of financial assets would not have been a problem had it not been upsetting the world of real things. As I shall demonstrate subsequently, the COVID-19 pandemic is threatening to deepen the divide between the real and the financial, besides aggravating inequalities. If asset price inflation is allowed to continue unabated, it would lead to unpara­lleled economic devastation. The consequent economic catastrophe would ­necessitate a complete overhaul of the social and economic order.

The financial assets and the real things they represent are not the same. That they are not the same is what makes the world of finance possible. That they are different is also the reason for the occasional breakdown of the trust in the system. The relationship ­between the real and the financial is essentially dialectic in nature. This article is not an attempt to undermine the importance of financial evolution. Financial growth undoubtedly has helped the development of the real economy in many ways. But, that it can turn out to be highly disruptive is also borne out by economic history. The owners of financial assets would wish to have a reasonable return on their investment. But, can the claims on real things grow independently of the availability of the real things? It can grow only till the faith or trust in the ability of the financial assets to command real things lasts. Once the trust is broken, everything crumbles down. Mountains of fictitious assets will disappear into thin air. Millionaires might become penniless overnight.

To read the full text Login

Get instant access

New 3 Month Subscription
to Digital Archives at

₹826for India

$50for overseas users

Updated On : 7th Sep, 2020

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Analysis of the current and emergent correlation of forces between US–China–Russia points towards a new era of one super-imperialist power...

With the effects of the pandemic becoming increasingly severe by the day, there has been an almost total shift to online modes of operation....

An in-depth accounting of toilet coverage is more vital than ever as the COVID-19 pandemic makes its way through India. While independent research...

The genesis and evolution of the COVID-19-led migrant crisis in India, along with the institutional responses, is discussed. The focus is on the...

C P Bhambri believed that the task of social science, like all other sciences, was to arrive at the truth on the basis of well-established facts....

The COVID-19 pandemic may affect the financing opportunities for innovation. The revenue loss induced by the pandemic is likely to divert the...

When the goods and services tax was introduced in July 2017, states were given a revenue guarantee of 14% per annum on their GST revenue over the...

India’s public health system has struggled to cope with the COVID-19 crisis. Even before the pandemic, India’s public health infrastructure was...

The National Education Policy, 2020 unveiled finally seeks to usher in major structural reforms in higher education. Among many measures,...

The COVID-19 pandemic and the resultant lockdown led to the closure of all markets in Manipur, including the Tribal Market Complex in Imphal East...

Back to Top