The speed of money
An extra property of mere money transactions
In the scheme showing the layers and the transactions in the societal system we see at the bottom the transactions that can be established physically, in the middle we find transactions that (in majority) exist of exchanges of goods and services for money, and the transactions at the top are exchanges of money for a document or some kind of registration; the physical aspects are here reduced to a minimum.
The fact that the object of the transactions between the top layers is almost not tangible or visible, is not the only characteristic of the flows that we find there; they are characterized by a much more important feature, namely, the speed with which they can be handled.
Evolution in the past decennia
A couple of decades back in time exchange transactions passed relatively slow by orders to buy or to sell going through a bank to the traders at the exchange. Information about prices and how business in the enterprises was going on came through at the daily pace of the news through the media. As a consequence reactions based on the available information also went at the same rhythm.
The progress in communication technology makes it possible at present to dispose within minutes of information by means of words or images from over all the world, and thanks to the capacities and processing speed of nowadays computers people are able to calculate within (fractions of) seconds the consequences, effects and results of the movements occurring in the market. Besides, the money for exchange transactions is immaterial and can be transferred at the speed of light, and access to the exchange has been facilitated in such a way that we have an environment where massive numbers of transactions can take place within minutes, and consequently profits can be realized and losses suffered – based on general news and announcements, expectations, projections, and rumours – before the next hour is over.
The link with the lower lying layers and transactions may not be released
From the layer scheme we gather that transactions get their use and sense from the transaction activity in the underlying layers. The second and the third layers in the scheme also profited from the progress in communication and computers, but that does not at all enable the entities concerned to handle their transactions with the same speed as those between the money layer and the exchange layer.
Any activity in the sphere of winning, production, transport and trade requires – notwithstanding automation and an increase of productivity – a laps of time that cannot be expressed in seconds but instead in hours, days or even much longer periods of time. An enterprise can only acknowledge or deny the well-founded or unfounded fears or expectations playing at the exchange with the effective performances in the physical economy that are realized or finished some time later; correction or defence in the same (super-)fast rhythm is not possible. As a consequence ‘wild’ developments at the exchange put the physical economy under pressure and/or hamper the normal functioning or continuation.
The high working speed that is possible at the exchange, leads for the smaller group that succeeds in getting speculative profits, to an increased concentration of capital, but disturbs for those that have to suffer losses – that is from the some less fortunate exchange speculators till the just not financially weak – the progress that they could normally have counted on based on the efforts within the rules of the physical economy.
Originally money was only a means for paying and preserving, and it flowed at the speed of the physical economy. The industrial development and the arise of the bank system has added the role of the means for investing, with the same flow speed as in the physical economy. With the arise of the exchanges the speed of money flows has already accelerated substantially, and by the above outlined recent developments the potential maximum speed has become phenomenal.
The recent financial crisis that caused an economic crisis is a compelling warning that the political men in power on the world level must urgently do something about that ‘difference in speed’.