Benefits of Financial Services
Casinos and government sponsored lotteries are merely peddling hope. But financial services provide real benefits. Today I want to talk about those benefits, apart from the most obvious one, namely to facilitate payments between all members of a society.
Resource Allocation
The financial service industry allows you to move resources along a time line. Banks do this by selling investment products and by providing funds for those, who can use them productively. In one sentence: They facilitate a viable allocation of economic resources.
Human life would not be possible without moving resources through time. Every child needs to grow and learn before creating value and earning income. Thus the generic provider of financial services is the family. Parents care for their children and hope to get in return care when they are old.
Accomodation of Cycles
Financial Service companies help us to allocate resources as needed along economic cycles. One example is a life insurance company. You pay a small amount every month for a very long time. You receive in exchange monthly payments after retiring. We use financial services to smooth other types of economic cycles as well. Examples are:
- yearly seasons
- product life cycles
- economic cycles of boom and bust
Every economic cycle contains a time period to invest and another period to profit. Financial services take care of resources which you want to keep for later use and allow yuo to focus your resources where they promise best results.
How is this done? People are born and die, new projects are started and concluded every single day. Some produce currently more resources than they consume. This happens most often in the middle of a life cycle. Others need a current net input of resources. The results can be smoothed by connecting people and projects in different phases.
Speculation
Seasonal cycles and boom/bust cycles of the economy need another type of financial services, the accumulation of tangible goods. For example surplus farm products are stored in summer and autumn. We eat them in winter and spring. Almost no fresh food grows in Europe in January, but hungry mouths are still around.
The Bible describes an archetypical economic boom and bust cycle: The seven fat and the seven meager years, managed by Joseph who stored food in warehouses. The ugly word for his behaviour is “speculation.” But people do not hate the food provided by a speculator. In truth they hate their own myopia, which can be cured at times using financial services provided by speculators, although for a hefty price.
