Improving the economy is a concept that most people are familiar with but likely have different understandings of depending on the circumstances that they find themselves in. There seems to be no shortage of political pundits, candidates, leaders, and non-specialists provide visions of what’s wrong and how we’re going to fix it. Strangely one topic that rarely gets any attention is the relationship between finance, that is the management of capital and credit, and the real economy. Creating the institutional reformation necessary to reorganize society requires Progressives to have a deep understanding of this relationship to better communicate alternative visions of the future within their communities. I argue that a fundamental objective of the Progressive is to bind financial activity to the real economy.
What is the Real Economy?
The real economy is the productive engine that powers our methods of exchange here in the United States. A person creates something independently or as part of an organization with the intention of giving the thing to someone else in exchange for compensation.
Through the structure of our legal arrangements, the privatization of land, resources, and outputs are intended to give people the freedom to help manifest their destiny through exchange with others. Elements of privatization are part of the constitution, although the definition of property was left vague.  The constitutional architects intended for states to act as experiments in ways of living, determining their definitions of what was and was not considered legally ownable. The Constitution also paved the way for copyright and patent laws and gave Congress the authority to punish piracy. I imagine it would have been difficult to envision the results of their structure through the lens of the present with our ever-increasing wealth concentration  further calcifying hard socioeconomic class structures within the United States.
The law allows for profit maximization, obligating firms to maximize value for shareholders. In many cases, privatization ends up acting as a shield for ill-intentioned actions under the guise of profitability. For example, Exxon knew about climate change for over 35 years and actively spread misinformation to the public about it.  The CEOs serving during this time have not faced repercussions for actions they were ultimately responsible for. The real economy serves as an engine supporting the innovation of life within United States. The narrow goal of profit does not serve the larger purpose of social organization outside of the state and restricts our collective potential for innovation. This isn’t a call for the total abolition of privatization, rather a criticism of its limitations and the arrangements that support our singular form of it.
The Value of Finance
In his 2018 Progressive Alternatives lecture series, Roberto Mangabeira Unger discusses research that indicates that over 80% of productive economic activity acquires funding by productivity itself. This means that instead of investing in new companies, new innovations, and new types of markets that could ultimately produce results that would demonstrate significant value to society the majority of money is risked through techniques whose only intention is to create more capital through financial schemes. Venture capital is increasingly popular but contributes a statistically insignificant amount towards the total productive agenda. These data points call into question the value of high-finance operations such as stock exchanges, which fail to fund the productive agenda of society as the majority of monies generated is staying within the system.
When the economy is booming, high finance is invisible to many Americans; in time of crises, it’s destructive. The 2008 financial crash was caused by the speculative financing activity of for-profit banks which then socialized their losses through government bailouts and the repossession of the very homes that they capitalized on in the first place. All of these actions were supported and protected by our legal arrangements.
We can dismiss arguments that the stock exchange somehow sets a value benchmark for corporations looking to borrow capital from banks, as we know that is just not true. The biggest firms are stockpiling cash  and do not seek loans from banks. We must ask ourselves, how do our laws permitting this storing of cash benefit real economic activity? The simple answer is that they do not, bringing into question why they still exist.
Redefining the Relationship
We need to break the narrative that markets efficiently allocate capital to the most efficient use. The statement is only true if you define efficiency as the best returns for the owner of said capital instead of adding tangible value to the real economy. For those of us who do not share an ownership stake in high finance, the apparent truth is that high finance does not serve the collective public good under its present arrangements.
Progressive leaders need to be proactive in their market innovations, abandoning historical precedence of reactionary regulations applied after the damage. This narrative is old, tired, and does not work. Never do we hear visions of alternative arrangements that would prevent the very activity that we seek to regulate in, retrospectively. A Progressive knows that there is no legal requirement to have markets organized in a specific way and that anything that has been created can and should be improved upon without respect to historical norms. Change is a universal truth, and no institution is sacred when it comes to innovation for the shared public good. Our purpose is clear: we must focus on changing the relationship between finance and production.
Pulling again from Professor Unger, we can begin to develop our framework of how to proceed. First, we create legislation that prohibits financial activities that have no relation to expanding our collective productive efforts such as derivative trading. We redefine financial speculation, allowing it so long as the purpose is to experiment, innovate, or handle risk. Our goal is not to eliminate instability as some instability can be good, but to ensure that these efforts are towards creating real economic value. Speculating for the sole purpose of increasing numbers on a balance sheet is akin to gambling and is hindered to reduce dramatic boom/bust cycles.
Beyond restricting, Progressives must begin with imagining how we can better utilize the potential of all of the underutilized capital floating within our economic system. History and present time provide
The power of the state to should be used to create new directions for asset creation and innovation towards a shared vision of the good. We can choose to have the state to manage these funds or if we want them independently led by actors under a non-profit structure. Either is acceptable, and the most efficient and effective method should be the primary definer. Both choices require codifying radical transparency into the process and stricter penalties for potential misuse of resources. Reimagining the relationship between finance and the real economy need not be limited to state controlled programs, we can and should still take advantage of the latent experimental potential of the individual.
This single example of the proposed framework for Progressives proceeding draws from our shared understanding that no natural method exists to connect finance to real economic activity. It is up to us to create the method. Our design must be consistently scrutinized for new opportunities for innovation in the service of the public. Progressives understand that our clearest pathway towards transformation is addressing systemic deficiencies at their root cause. By forcing finance to act in the direction of productivity and denying capital holders the ability to speculate for the sole purpose of personal gain, we lay the foundation for a more expansive approach to experimentation and innovation with society.
 The Constitution and Property Rights by Rob Natelson Independence Institute https://i2i.org/the-constitution-and-property-rights/
 Inequality gap widens as ‘world’s richest 1% get 82% of the wealth,’ Oxfam says by Sam Meredith CNBC https://www.cnbc.com/2018/01/22/wef-18-oxfam-says-worlds-richest-1-percent-get-82-percent-of-the-wealth.html
 Exxon Knew about Climate Change almost 40 years ago by Shannon Hall Scientific America https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/
 CASH RICH: 10 COMPANIES WITH THE LARGEST CASH PILES Forbes https://www.forbes.com/pictures/mlf45kijd/google/#5abcd38729a8
Ron is the Founder and Executive Director of the OurSociety Experiment. He’s passionate about shifting our social, political, and economic institutions towards a system that maximizes agency and access for every individual.