Letters in Economic Research Updates
Credit Beats Growth: Credit in Modern Capitalist Economy in Crisis.
Abstract
Ralf Pauly
Finance is increasingly dominating the entire economy and determining social life more and more. This credit economy is unstable. To ensure stability, central banks intervene massively in the financial market. As a result, credit is growing, but economic growth is lagging behind. This has serious consequences. The evolutionary balance between “credit” and “growth”, on which society’s confidence is based, is in danger.
This imbalance leads to a serious loss of trust in the foundation of the market economy. In order to secure trust and master the two upcoming transformations – the transition to green production and the splitting up of global economy to competitive areas - , the state, or more precisely the central bank, must also transform itself. The central bank can add a second orientation to its hitherto one-sided focus on the financial system by supporting the development of civil society with direct financial transactions.