Financialization
Why does everything cost more while your paycheck stays the same?
Money stopped funding production and became a game unto itself. Different rails don't fix this — traditional finance and DeFi run the same extraction pattern.
The Mechanism
Capital used to flow to production. Then it stopped.
| Era | Capital Flowed To | Result |
|---|---|---|
| Industrial | Factories, infrastructure, production | Broad prosperity |
| Financialized | Financial engineering, asset inflation | Wealth concentration |
What shifted:
| Year | Event | Effect |
|---|---|---|
| 1982 | Stock buybacks legalized | Companies inflate stock instead of investing in workers or R&D |
| 1980s-2000s | Financial deregulation | Banks gamble with deposits, create exotic instruments |
| 2008+ | Central bank intervention | Money printing inflates assets, rewards holders over earners |
| Ongoing | Information asymmetry | Insiders front-run every opportunity, retail arrives last |
The score got confused with the game. Money was supposed to measure value created. Now money creates money — proximity to the printer is the game.
The Numbers
| Metric | 1970s | 2020s |
|---|---|---|
| Finance share of GDP | ~4% | ~8% |
| Finance share of corporate profits | ~15% | ~30% |
| CEO-to-worker pay ratio | 20:1 | 350:1 |
| Home price to income ratio | 2.5x | 5-10x |
| Real wage growth (adjusted) | Positive | Flat |
Corrosion
| Effect | What It Breaks |
|---|---|
| Talent misallocation | Smart people go to finance instead of building things |
| Short-termism | Quarterly earnings over long-term value |
| Standards decay | Competition becomes who cuts corners fastest |
| Trust erosion | If the game is rigged, why play fair? |
| Political capture | Money buys rules that make more money |
The metacrisis — tech risk, environmental collapse, coordination failure — all get worse when capital flows to extraction instead of production.
Same Game
DeFi recreated the same extraction on blockchain rails. One coin spun fast enough to look like ten.
| Extraction Pattern | TradFi | DeFi |
|---|---|---|
| Front-running | Dark pools, HFT | MEV extraction — $1.8B+ cumulative on Ethereum |
| Sandwich tax | Spread capture | Sandwich attacks — $289M in 2025, one trader lost 98% on a single swap |
| Gatekeeper rent | Bank fees | Protocol fees — $6.1B in H1 2025 (+113% YoY) |
| Insider advantage | IPO allocations | Pre-mine — insider ownership 15% (ETH) to 58% (FLOW) at launch |
| Leverage games | Derivatives, CDOs | Recursive lending, yield farming |
| Vanity metrics | GDP, stock price | TVL — double-counts assets at ~2x real value |
The tool isn't broken. The incentive structure is. Open rails don't fix extraction when the agents on those rails optimize for the same game.
Abundance Problem
The Diamandis crowd frames abundance as exponential graphs and trillion-dollar markets. Still denominated in the financialization frame.
| Frame | Measures | Creates |
|---|---|---|
| Abundance as number | GDP, market cap, TVL | More extraction at scale |
| Abundance as capacity | Transformation capability, flow quality | Real production expanding |
Abundance is a mindset, not a metric. Real capital deployed to real work — improving how value is transformed and distributed — expands capacity. Spinning financial instruments faster concentrates numbers.
Herman Daly drew the line: growth (quantitative increase) is not development (qualitative improvement). Kate Raworth's Doughnut Economics frames the same insight — thrive within boundaries, don't worship the growth line.
The Diagnostic
| Question | Financialized | Productive |
|---|---|---|
| Where does capital flow? | To assets, then back to more assets | To production, then to distribution |
| What does the agent optimize? | Return on capital velocity | Return on value transformation |
| What standard does it raise? | Extraction efficiency | Quality of output |
| Who benefits from growth? | Holders closest to the source | Builders and users |
| What compounds? | Financial complexity | Productive capability |
Links
- Lyn Alden: Broken Money — Why the financial system is failing
- Cantillon Effect — Why proximity to money creation matters
- Stock Buybacks Explained — How companies game their own stock
- Doughnut Economics — Thrive within boundaries
- Herman Daly: Ecological Economics — Growth is not development
Context
- Creating Capital — Capital value streams and putting capital to work
- Participatory Capital — Crypto as infrastructure for productive capital
- Agent Commerce — Same game on new rails?
- Standards — Competition should lift standards, not lower them
- Game Economics — Where economic models get tested cheaply
- Governance — Why protocols beat politicians