A little more on credit economies

As I wrote some time earlier, in my note “My trouble with GDP“, I’ve felt for a while now that the ways in which we measure output, value, success are inherently flawed, and generate some big problems.

I went into some detail on why I thought GDP was flawed — basically an output-focused framework that relied on consumption for succcess, which implicitly forced the transition from a consumption-based economy in the early 1900s, to a credit-based economy in the late 1900s, to a derivative and instrument-focused economy in the late ’90s and early ’00s. (Implicit in that transition is the changing socio-economic structure of society, some of which I listed out in the aforementioned essay, and more of which you can read in McAffee’s Race Against the Machine, form which I’ve shared one relevant excerpt here.)

The implications for this transition oftentimes came up when we were looking at corporate/portfolio strategy for clients.

At some given point, for most firms, a question that will come up is, “why are we not a bank?” / “why aren’t we using our money in market-side instruments?”

If you look at the tetrad model, you ask yourself what any particular form or framework will evolve into, as it progresses. And if the primarily defined purpose of a firm is to make money, that implies maximizing output and minimizing input. And few frameworks allow you to do that as abstract moneymaking (read investment banking) does.

This is not to say that it was ever recommended to a client that they start up a bank — a strategist/org. planner’s job is partly that of making the firm money, but also of helping a firm develop its natural industr(ies). What we would recommend is in developing financial instruments that take better care of the firm’s assets and money.

If any of what I’m saying seems outlandish, note that Apple — yes that bastion of industrial design and incredible products, in its last filings with the SEC indicated $82bn+ were held in marketable securities, bonds, derivative instruments, and so on.