I disagree that financial markets are the foundation of society. Instead, I think they're more near the top or to the "side". Closer to the foundation of society is more basic and primal human needs and wants, and people doing real work, making real things that other people need or want. Finance is just a very modern abstraction. It can be useful, but also just another form of gambling or parasitism. Again, not to say it's not useful to understand. Just not part of the foundation of society.
I disagree - if there were no capital markets, there would be nothing to build your house, or bed from. You would be forced to build your house and eat from what was lying around in your local area, even if you organise a tribal organisation to all help each other. You would live a short life and see many of your children die before their 5th birthday. Because that's how it used to be.
The dramatic improvements in lives came about at the time of the industrial revolution, which in itself was partially an engineering outbreak, but also an outbreak of the abilities to raise and organise capital that had been perfected by financing risky and long sea voyages, which, in themselves brought about dramatic lifts in quality of life. No finance, no 'new world', no USA.
I might add that 'capital markets' cover the entire span of financing, from angel investing to the big board in New York. The principles are just the same and the knowledge required is very similar.
You may dislike the capital markets, but you cannot deny that the rise in standard of living, technology and wealth is not linked to the invention of both structured lending, pooled risk/reward and ability to trade both equity and debt to other people. If you meld my thoughts with PG's discussion at http://paulgraham.com/gap.html you can see the rise in wealth and living standards happening in parallell along with the developments of structured and tradeable debt, invention of partial ownership and tradeable securities (share markets) and of pooled risk taking (insurance). I also recommend Niall Fergusons' 'Ascent of Money' for a good backdrop into how/why this is. http://www.amazon.com/Ascent-Money-Financial-History-World/d...
Again, you might dislike the role that markets have, but pretending they are some sort of bolt-on that could be disposed is very naive thinking.
This discussion about the foundation of society is like two people arguing whether the foundation of life is evolution or sunshine. The only real point of contention is how to define "foundation", and any given answer will stem from ideology, and will therefore be worthless.
Finance is about as old as civilization,* the Babylonians did it. To take an amount of money from someone who does not, at the moment, need it and loaning it to whoever can pay the most for the privilegie (often another middleman in the huge network that is a modern financial market) is a type of work that is essential to our system of production. Without people doing this kind of work this page would not have existed (if memory serves me right viaweb, PGs company, got venture capital). The arrogance with wich people diss finance (and the amount of upvotes these kinds of comments get) show why learning finance 101 really should be part of a good undergraduate curriculum.
edit: yes, some financial markets are indeed parasitic, this is often because someone got the public to guarantee for something. This has more to do with the political economy than financial markets per se.
Globalization and modern business practices have unfortunately made global finance markets a very real core part of the way a society functions.
That's why a market crash in the US throws the world into a financial depression: small businesses cannot get loans, governments and consumers lose confidence, jobs are lost, people starve.
It's probably more along the lines of people having built what we have today upon the capital markets as a foundation, to the point where many people don't realize that there is bedrock that is supporting that foundation.
Agreed the finance "layer" of the world today is important and can have large positive/negative effects on the "real" part of the economy. I just don't think it's part of the foundation. One thought experiment would be to imagine the world without finance: could we still eat? have places to sleep at night? Raise kids? Heck yes. Now instead imagine a world without food or shelter or babies, or the ability to make them. We'd be doomed. Also, humans lived millions of years without finance and can again in the future if really needed. We can't live without food production/consumption. Foundation elements are revealed real quick in these kinds of comparisons, I think.
Again, not to dismiss finance and capital markets, investment, etc. as non-useful. It's just that they are a very modern and recent invention, at best one particular tool, and only an abstract layer on top of the more "real" parts of human existance.
Well I suppose if you want to look at it like that, than by strict definition, you're right, we can still have a functioning society without capital markets.
But as today's cities/nation states, at some comparable level of comfort and consumption, we cannot function without those markets. Hence why there are those of us who believe they are the foundation of modern society.
They are neither modern nor recent, you are completely wrong about this. And when people abolish capital markets people have a tendency to starve, see the russian revolution, maos great leap forward and the de-colonization of the third world. Today the us is at a level of prosperity that would make sure people didn't starve if financial markets disappeared, it got that rich trough a process of economic growth for wich financial markets were essential.
Modern society, esp. one nearing 7 billion in number cannot live without finance. Without finance to equitably allocate resources, there would be massive shortages -> famines -> wars -> apocalypse. However, I am going to pull the intellectually lazy card and not go through all the trouble to prove this, and allow the reader to chew on it as a hypothesis. It's late, and I'm tired.
