At this point someone please explain to me how finance doesn't exist to extract wealth from the rest of us.
The problem with labourers who work in these secondary markets however, is the same as the guards who watch the gate: they can extract large tolls for being in the right place at the right time.
People in finance are rich because they're well-placed to skim highly productive traffic. However, it is -- in the vast majority of cases -- only skimming. The system functions very well to take unproductive surplus and allocate it effectively.
Though admittedly today, the larger beneficiaries are increasingly monpolies, and so on. But this isnt a side effect of the finance industry, but of the state.
How do you quantify this?
But also, profit margins of major industries; amount of wealth held liquid; and so on.
You might have a moral idea of 'effective' in mind, which may not be realised. I mean only that one does not find cash lying around the vautls of the ritch -- as in pre-modern times. People do not bury gold as jesus advised. Rather they dont keep gold, it is a line item held by a business doing something with it.
Actual efficiency would dictate that there be only a relative handful of finance jobs, let alone very well-paid finance jobs. And that the vast majority of the money go to actually productive industries. And that the financial markets understand the principles and timescales of other industries, so they don't screw everything up with decisions equivalent to "Fiscal quarter ends in June, and Farmer Jones says he can harvest zero corn by then. Shut him down."
For markets to exist, monopolies must be avoided. As you can't expect large companies to police themselves, this was generally the role of the state. The states must strike a balance between keeping large companies happy (that want monopolies and have cash today) and true markets (which are efficient on the long run).
The finance industry is probably just a side effect of everybody focusing on short term (both public traded companies and politicians/states)
What did you measure to come to this conclusion?
Availability of free capital is a function of both just general wealth of a society, and how well lubricated the wheels of finance are.
I don't think this is a controversial theory, even if it comes with unpleasant side effects (white collar crime, inequality etc). Just as having a buoyant defence industry that can churn out a lot of boom is great for a country's war fighting potential.
In the US there's plenty of money to throw on seemingly frivolous pursuits, because stagnant money is generally considered wasted money. It's considered better to have that money "working for you" invested in something, anything. You could lose out, you could also win big, at least you tried. Can't have omelets without cracking eggs, as the saying goes.
Another Europe-like example is Japan: A rich society with lots of money, but society doesn't want to waste it. So most of the money is stagnant, stored in deposit accounts or in a bedroom drawer (literally, see: Tansu Yokin[1]) instead of being invested in something consequently leading to a stagnant economy.
[1]: https://www.seattletimes.com/opinion/a-nations-character-rev...
It's the allocation of capital that matters. Land, machinery, and so on.
The extent of this is that if money sits in drawers not being spent, it represents diminished demand, which suppresses prices; the government can then print a corresponding amount of money to allocate capital towards other purposes. Leaving money in the drawer means delaying until another day your vote for how national resources should be allocated.
Whether they do so in return for services rendered or are extracting rents by acting as gatekeepers is a question that never quite gets resolved. A little of each I suspect, depending on the context.
If you want to call them a protection racket akin to the mafia... you're probably right.
Of course, banks these days are much more than that and there's plenty to rightfully crucify them for. But even still, there's a reason being called a third-rate bank clerk is an insult among the highest order.
The banks profit margins would suggest that they are not really facing the fierce winds of competition.
I want to see some decent analysis of the situation, not stories about how the system is supposed to work.
In your example, you should include how many $ go to the entity doing the allocation. If this is an insane amount of money, then maybe we are better off without finance and just figure out the optimal allocation in some other way.
To take a simple extreme edge case, let's imagine that there's a business that requires 500k to truly flourish, but if it gets that 500k, it will become $10B company within 5 years. If it doesn't get the 500k it will likely fail.
Only 1 person has noticed and believes that this business would have that potential. And let's say they either have 500k or they manage to convince others to get the 500k, how much of that $10B would they deserve?