Thursday 3 September 2009

Banks maximise profit

Not only in New Zealand, but also, it would appear, in the UK. But some see this as a bad thing. This from David Rawcliffe at the Adam Smith Institute blog,
FSA chief Lord Turner, interviewed recently in Prospect magazine, calls much of the banking industry “socially useless”, attacking its “excessive activity and profits.” The City’s response to these criticisms has been sensible, but bankers have been afraid to make explicit the crucial counterargument: that making money is, in itself, socially useful.

The argument is so simple as to be trivial: firms, provided they are subject to laws preventing theft and violence, can only gain revenue by selling things that people want; they can only make a profit if they sell these things for more than they cost to produce; and in the process of production they employ people who prefer that job to any other they could find. That is, profit-making firms create wealth (in the broadest sense of the word) for their customers, owners, and employees. They take wealth from no-one.

Turner talks vaguely of the banks failing to be ‘socially useful’. The truth is this: any industry that makes money is ‘socially useful’, in the very concrete sense that it makes all those involved better off. Banks made enormous amounts of money over the last decade because they promised something extremely useful: the efficient distribution of capital and risk. The wealth they created was found in the share prices and dividends of banks, the welfare of their customers, the pockets of their employees, and the coffers of the exchequer.
The desire to make a profit has long driven businessmen to find trades which are beneficial to all those involved. This desire for profits causes people to innovate, to compete, to generate wealth and to better the lot of society in general. It is a process we must harness, not constrain.

1 comment:

Anonymous said...

"Banks made enormous amounts of money over the last decade because they promised something extremely useful: the efficient distribution of capital and risk."

They promised, but did they deliver?

Wry grins from the sceptics.