Yes to most of that, the bank has taken the calculated risk and it is right it should be rewarded for doing so, etc. The function of the bank, and the legitimacy of it’s actions are clear.

The bank has contributed to the generation of the added value, as did the metalwork teacher who first introduced Bill to widgets, as did the designer of the widet-o-matic, the fireman who saved the factory when the widget-o-matic exploded, the nurse who removed the singed widget from Bill’s left nostril allowing him to return to work, the burglar alarm installer, the lawyer, the plumber..

But it was still the widget manufacturer who added the value. The others (except possibly the Acme Widget-o-Matic Co.) are service industries, servicing the wealth-creator, not wealth-creating themselves. Legitimately profit-making from the production of widgets, but not the same thing.

The two are not entirely symbiotic. I doubt the first hunter to chip away at a flint to make it stabbier went to a bank first, or even when he (or she) offered to make more ‘stabby-flints’ for his (or her) neighbours in exchange for meat and furs..

I can only speak for myself in this. To me plenty of ‘tertiary’ industries, including insurance and money lending, are legitimate and moral – not that what Matt deems moral matters a jot. Honestly I am not of the Guy Fawkes mask-wearing ‘all bankers are immoral’ brigade.

I am not sure that we need to worry where it comes from, Bruce – that might depend to a degree on your political philosophy. But let’s be aware of where it comes from so as not to condone mistaken policies built on sand. The individual profits of a company – any company – are not the same as a profit for the country as a whole.

Let’s say a bank gives Bill’s widgets 100,000 to build a new widget factory, buy 100 tonnes of widget-making material, and employ 10 widget makers. All good. Nothing immoral. Bill successfully makes and sells sufficient widgets to pay back his loan and the interest, and still keep a little for himself. All good, the bank has made a profit, everyone got a wage and Bill gets a Quinn’s Award for Industry.

But where has the money come from? It was NOT generated by the bank – they are ultimately neutral in the equation, their profits are just that, not an output, a profit. It has come from the pockets of the widget buyers, who see the value in the widget as far greater than the value of the raw material – Bill has added value by making something, and a portion of that added value now sits in the coffers of the bank. The bank did not ‘generate’ any value or any money, just a profit. A legitimate one, the service provided being the availability Bill needed to make the widgets. But because Bill pays back more than he borrowed, the bank are taking their profit out of the system, not creating it from nowhere.

Put another way, there is no more money in the system than there was before. However, there are more widgets, which have an intrinsic value. That was done by Bill / Bill’s workers (delete according to traditional viewpoint), not the bank. It would not have happened without the bank, but that’s not the same thing – as per my previous post.

That’s only my intuitive view, I am not an economist and all this is arm-waving stuff.

Not banker bashing at all, rather I see banking (in the non risk-dabbling sense) as an ‘essential service’.. ironically much like police or teachers – as you say, CD, the country wouldn’t function without it. Envy of the world? Well, it is possible for an institution to be that without being a net ‘producer’ – the NHS was that once.

My point was that intuitively at least I cannot understand why net value – production, the thing we both agree is needed to remain a viable economy – is generated by moneylending / investing any more than it is by staying in bed all day. Sure, it oils the wheels in an essential way, but that is not the same thing.

So no, not bashing banking or saying it is ‘bad’ for our economy, any more than nurses or plumbers who work for schools are. It’s just that banking is not where any ‘production’ comes from in itself. If your sole output is money, unless you are the Royal Mint you are not conjuring it from nowhere when it appears on your balance sheets, it has (sorry) come from somewhere else. Any actual value behind the profit is generated by those it lends to / invests in, not the bank itself. This is the massive trumpeting, sh*tting, elephant in the room that the ‘banking is what makes Britain great’ lobby choose to ignore.

That is not a banker-bash, any more than saying the NHS isn’t a net producer is a nurse-bash.

Via Google, I had a look at how the bank of England define the financial sector’s productivity and oddly it seems that uniquely in the case of this sector ‘output’ is seen as the same thing as profit. This really is a looking glass world..

OK, I can see how creaming money from transactions involving foreign funds can make the UK wealthier, but how much of this goes on?

I feel we are working to a consensus! (Though the ‘public sector flower pot’ nearly lost me 🙂 ). Completely agree about needing to understand where the money comes from and where it is going to. Can you explain (not facetious) where it comes from/goes to with ‘financial production’?

True, true. I agree entirely about the necessity of ‘production’ (actually a term used in Marxist theory) or ‘wealth creation’ (the Thatcherite equivalent) or call it what you will, essentially the same thing – adding value to the economy in a way that is shared fairly, adding to our collective comfort, security and quality of life.

Neither moving money around a ‘money market’ nor paying people to stay in bed (which are NOT ideological opposites, though the Mail would like you to think so) will do this, though some cannot see that. Both these activities net a big fat zero.

Point taken – I get that about it being a net tax take rather than a contribution on the part of the public sector worker.

The counterpoint is that all money paid to anyone comes from somewhere (someone) else. Public sector employees wages come from us the taxpayer, yes. So do the wages of the plumber whether they work for you privately and personally or your local state school.

That the pot of money paid to the school through taxation pays the plumber to ensure our (or, crucially, other peoples’) kids have fresh water and don’t get botulism is a simplistic expression of the collectivist principle. Take out the ‘state’. Now, if our kids were privately educated you’d still be paying the school’s plumber through fees. If you couldn’t afford to privately educate your kids, then you wouldn’t be. BUT there’d be fewer schools, and less work for school plumbers! How can that be a good thing all round?

In other words your 75% public-sector employee plumber would loose that 75%, Not sure what would be gained, other than an even more ignorant population.

As I thought would ‘:-)’