I\u2019ve had a recurring rant for a few years now, that I\u2019ve been happy to deliver over a coffee or a cocktail. The short form goes something like this:<\/p>\n\n\n\n
\u201cFinancial institutions don\u2019t produce anything. Instead, they act as catalysts \u2013 enabling other entities to be more productive than they otherwise would have. Because of the existence of banks who will offer loans, I can start a small business and stock the shelves. That additional productivity has real monetary value and so banks and finance houses have a perfectly valid slice of the economy from which to extract their profits.<\/p>\n\n\n\n
Here\u2019s the crux: Everything is fine as long as the productivity gains associated with the existence of banks exceeds the money that those banks extract from the economy. However, we need to keep in mind that banking does not actually produce anything<\/strong>. When banking, trading, hedging, or scamming come to be seen as actual productivity \u2013 then we have a critical error in our judgement that will eventually come crashing down.<\/p>\n\n\n\n Neither banks nor stocks nor funds actually produce value. So long as the finance system is an enabler<\/em> of increased productivity, all is well. However, when the finance system comes to be seen as a growth engine for the creation of wealth, in and of itself, that is when problems start.<\/p>\n\n\n\n