For Every Winner a Loser: What is finance for?

Leo

Welcome back to the podcast, everyone! I’m Leo, and today we’re diving deep into the world of finance. We’ll be discussing key insights from John Lanchester’s work, exploring the question: what is finance really for? It’s a big topic that has a lot of layers, and I think we’ll uncover some really interesting points about the role of finance in our society today.

Financial Expert

Thanks, Leo! I’m excited to be here and to tackle such an important discussion. Finance is often misunderstood. Many people think of it as simply moving money from one place to another, but as Lanchester points out, it’s so much more complicated than that. It’s fascinating how much of modern finance revolves around speculation rather than actual value creation.

Leo

Absolutely! It’s almost like the financial sector has turned into a giant casino. The example Lanchester uses with the mangoes really illustrates this idea well. The actual transaction that matters is the sale of the mangoes to the customer, but all those speculative trades in between? They don't create any real value. It makes you wonder about the purpose of all those trades.

Financial Expert

Exactly, and this brings us to the concept of zero-sum games. In the finance world, for every winner, there’s a loser. It’s a zero-sum game, which really raises questions about what it means to be successful in finance. If you’re just gambling on price movements, are you really contributing anything meaningful to society?

Leo

That’s a thought-provoking point. Lanchester argues that this kind of wealth accumulation can create a disconnect between the financial elite and the rest of society. It’s like the rich get richer while contributing nothing to the real economy, and it raises concerns about the sustainability of such a system. How do you think this affects the average person?

Financial Expert

It creates huge inequality, which is incredibly damaging. Many people are working hard in low-paying jobs, while the finance sector is making astronomical profits with little tangible benefit to the economy. This discrepancy can lead to social unrest and a feeling of disenfranchisement among those who are left behind. Plus, it affects how we value different types of work in our society.

Leo

You’re right. There was a moment during the pandemic when we saw how essential many of those low-wage jobs were, and yet they remain undervalued. It’s a critical moment where the focus shifted momentarily to those providing real value—like essential workers. But, as you said, it seems we’ve slipped back into our old patterns of thinking. Why do you think that is?

Financial Expert

I think it’s largely because of how entrenched these ideas are in our society. The financial system rewards those who know how to play the game, and as Lanchester points out, this has become a path to wealth for many. It’s not about creating value; it’s about being good at speculating. And that mindset is pervasive, not just in finance but across our culture.

Leo

It really is a cultural issue as much as a financial one. And then we have the billionaires who made their fortunes in finance often turning to philanthropy to find meaning. It’s almost like a way to offset the negative perceptions of their wealth. What do you think about that?

Financial Expert

That’s a fascinating phenomenon. For many in finance, especially those who realize the emptiness of their wealth accumulation, philanthropy becomes a way to seek redemption. They want to be seen as contributing to the greater good, but it’s often a band-aid solution for a much larger systemic issue. It can feel disingenuous when the foundations of their wealth are built on speculation rather than genuine contributions to society.

Leo

Right, and it can also raise the question of who gets to decide what’s considered ‘good’ or ‘valuable’ in the philanthropic space. It’s a complicated web, for sure. And while some wealth can be funneled into genuine, impactful causes, the underlying structures of inequality and speculation still remain intact. It feels like we’re just putting out fires rather than addressing the root causes.

Financial Expert

That’s a powerful way to put it. Unless we fundamentally rethink how finance operates, we’ll continue to see these cycles of speculation and inequality. It’s crucial for us to have these conversations, to question the status quo, and to envision a financial system that truly serves society.

Leo

I couldn’t agree more. It’s all about creating a system that values real contributions and equitability rather than just financial gains. I think we’ve only scratched the surface of this discussion, and I’m looking forward to delving deeper in future episodes. Thanks for joining me today, and for shedding light on these critical issues!