Last modified: 2017-05-27
Abstract
Abstract 14th STOREP Conference, Piacenza 8-10 June 2017
How much does finance benefit society?
Giancarlo Bertocco*, Andrea Kalajzić**
*Università degli Studi dell’Insubria, Varese
**Università degli Studi dell’Insubria, Varese
JEL codes: G00, G01, G20, E12, E44
Keywords: good finance, bad finance, enterprise, speculation
The financial crisis erupted in the US in 2007, which caused the subsequent Great Recession, has generated among the public, feelings of deep aversion towards the banking system, bankers and, more generally, finance. Luigi Zingales (Does finance benefit society?, Journal of Finance, 2015) urges the economics profession not to underestimate these feelings, as in his opinion they are based on valid reasons. He remarks that, in general, economists tend to overestimate the benefits of finance, and to ignore that the ‘best form of finance’ (Zingales 2015, p. 1338), which generates positive effects on society, is nevertheless accompanied by a ‘bad type of finance’ (Zingales 2015, p. 1338), which is based on rent-seeking activities that are not justified by the production of any useful service to society.
Zingales (2015) states that the coexistence of these two types of finance is explained by the fact that the characteristics of financial markets sharply differ from those of the traditional markets. The aim of this work is to present a sounder explanation of the distinction between ‘good’ and ‘bad’ finance compared with the Zingales’s explanation. The paper is divided into two parts. In the first part we highlight the limits of Zingales’s description of the characteristics of the financial markets. In the second part, we elaborate an alternative explanation of the differences between ‘good’ and ‘bad’ finance, which is based on the distinction between ‘enterprise’ and ‘speculation’ introduced by Keynes in Chapter XII of the General Theory.