Money was invented to facilitate economic transactions and thus serve the real economy. Over the past 30 years or so, this relationship has been reversed: the real economy now appears to serve financial markets with financial crises bringing down economies. “Financialization” is the term experts use to describe this phenomenon.
As part of our Editorial Plan’s focus on international economics and finance, yesterday we described the history of the international monetary system. On Monday the ISN speculated that the growing importance of foreign direct investment and global financial markets makes the most recent wave of globalization the most impressive. What follows is a critical analysis of the evolution of financialization, which has pernicious side-effects that remain difficult to resolve.