How much does finance benefit society?

The financial crisis erupted in 2007 has generated among the public, feelings of deep aversion towards finance. Zingales (2015) in his American Finance Association presidential address, urges the economics profession not to underestimate these feelings. He remarks that economists tend to overestimate the benefits of finance, and to ignore that the ‘best form of finance’ is accompanied by a ‘bad type of finance’. The fundamental limitation of Zingales’s thesis is that it does not provide an explanation for the coexistence of these two forms of finance. The aim of this work is to highlight the limits of Zingales’s analysis and to present a sounder explanation of the distinction between ‘good’ and ‘bad’ finance, based on: i) Keynes’s distinction between ‘enterprise’ and ‘speculation’; ii) Schumpeter analysis of the role of bank money in a capitalist economy.

The financial crisis that erupted in 2007 has generated feelings of deep aversion towards finance among the public. Zingales (2015) urges the economics profession not to underestimate these feelings, noting that economists tend to overestimate the benefits of finance and to ignore that the ‘best form of finance’ is accompanied by a ‘bad type of finance’. The problem with these statements is that the macroeconomic theory elaborated over the last decades is unable to provide a satisfactory explanation for the coexistence of these two forms of finance. The aim of this work is to present a sound explanation of the distinction between ‘good’ and ‘bad’ finance, based on: i) Keynes’s distinction between ‘enterprise’ and ‘speculation’; ii) Schumpeter analysis of the role of bank money in a capitalist economy.