Although the paper economy is not directly involved with production and consumption activities of the real economy, it provides critical complementary support. For example, the paper economy makes it possible for a business firm to acquire the funds used for capital investment and for a consumer to acquire the funds used to purchase durable goods. Without the paper economy such expenditures are difficult if not impossible.

Legal Claims

Of course, given that OmniConglomerate has over 100 million shares of stock outstanding, Duncan's 10 shares gives him an exceedingly small claim, but a claim nonetheless.

Real or Paper?

However, in modern times the paper economy might be better termed the "electronic economy." The paper of the past has largely given way to electronic data storage. Many legal claims are recorded as entries in computerized accounting systems.

Financial Markets

In contrast, financial markets trade the legal claims that represent ownership of the goods, services, and resources exchanged in product and resource markets. Most notably, when legal claims are exchanged, income is diverted. Those buying legal claims give up income and those selling legal claims obtain income.

An important diversion facilitated by the exchange of legal claims is that from the household sector to the business and government sectors. The household sector buys legal claims as a means of saving income. The business and government sectors sell legal claims as a means of obtaining income used to finance investment expenditures and government purchases.

Suppose, for example, that Duncan Thurly deposits his $243 paycheck in OmniBank. He gives the bank $243 of income, and in exchange, the bank gives him a paper legal claim (the bank account statement). They owe him $243. In effect, by buying this $243 legal claim he has made a $243 loan to the bank. He has supplied $243 of his income to the financial markets.

On the other side of this financial market, the OmniBank has sold Duncan a $243 legal claim, and in so doing has taken possession of $243 worth of his income. They have borrowed his $243.