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Basically, wealth is measured using fiat currency which is purely a social contract decoupled from material reality. So the game that financial capitalists play is to drive that number up as much as possible. To do that you want to minimize your initial investment and risk while maximizing profit. The question then becomes what kind of business model best fits that game. And this is where the mechanism you’re asking about which is rent seeking, comes in.

Rent seeking means extracting value without creating new wealth. You capture a stream of payments by controlling access to something people need such as an essential platform rather than by making and selling a better product at a competitive price. Growth asset speculation which is the burning money model is almost always a long game aimed at building a monopoly or a cartel position from which you can eventually charge rents. The burning phase is not an alternative to rent seeking. It is the upfront cost of buying a future rent extraction engine. So when a company burns money, you have to look at who is on each side of the value transfer.

First, the money comes from investors. In the early stages it tends to be venture capitalists and later in form of private equity, and eventually public markets through an IPO. These investors hand over real fiat currency today in exchange for equity. That cash is then spent subsidizing users and workers below cost. The immediate transfer is from the investor class to consumers, think artificially cheap rides or food delivery, and to some extent to the workers who get paid more than the unit economics can sustain. The consumer gets a discount and the worker gets their wage while the company books a loss. So in the burn phase value flows from capital owners to the general public as a bait.

The whole plan only makes sense if the company eventually flips the transfer. Once competitors are bankrupt and the platform becomes the only practical option, the subsidies disappear. The company now extracts rent from the same consumers in the form of higher prices, and squeezes the same workers by cutting pay or increasing their fees. The investors who stayed in until the monopoly phase can then harvest those rents for years. The original burn was an investment in a future right to extract. That is why the primary underlying mechanism is rent seeking rather than production.

There is also a secondary transfer happening in parallel. The early investors often do not wait for the monopoly rents. They orchestrate funding rounds where the company’s valuation is pumped up based on user growth stories. They sell part of their stake to later investors at a markup. When an IPO happens, the original venture capitalists and founders can cash out entirely passing the bag to mutual funds and retail shareholders. Those later buyers are left holding equity in a still unprofitable company and hoping the rent extraction phase materializes. If it fails then they eat the loss while the early players already made their money. So it's a type of a hot potato game where the value transfer is from late stage or public market investors to early insiders. This is a separate extractive trick layered on top of the rent seeking core.

Now within this framework it does not make sense for financialized capital to invest heavily in things like competitive factories or small margin production businesses. Such ventures are capital intensive because you have to establish supply chains, build plants, train workers, hold inventory, and etc. Margins stay low because competition can enter and undercut you unless you have a rare moat like a patent or state granted monopoly. If the business fails you are stuck with physical assets that are hard to repurpose. Ephemeral ventures like software platforms are more attractive because they have low input costs and they can scale fast to create network effects locking users into a position where they have nowhere else to go. That is a fertile ground for rent extraction. Some material businesses can also become rent seeking if they consolidate and control an essential bottleneck, but the upfront cost and risk are higher in that scenario. Financial capital will naturally prefer the purest and cheapest path to a rent extraction position.

And this creates a selection pressure for the entire economy. Since business activity is largely driven by private capital allocation, the types of ventures that get funded are those that promise a clear path to a rent extracting monopoly rather than those that simply produce useful things. It is not that all industry literally disappears, but the logic of the system constantly pushes toward enclosure and monopoly using shady practices like tollbooth models. That is the underlying reason state level planning and state ownership becomes so critical as we see in China. The state is not chasing profit, instead it is interested in developing a productive economy that creates social value. That is why state investment in infrastructure and state owned enterprises can sustain industry that private financial markets would starve. The west lost its industrial base because financialized selection pressure simply stopped favoring it.