On the Social Efficiency of Finance

The rise in the economic and political power of finance over a number of decades is hardly in dispute these days. While there is now considerable agreement among economists that unregulated finance has the potential to contribute to financial instability and financial crises, there is much less agreement about the long†term impacts of modern finance on capital accumulation and distribution. This contribution, focused on the USA, explores some of these relations under the heading of the ‘Social Efficiency of Finance’, a term used here to mean the impact of financial institutions and relations on income and wealth distribution and on the development of the economy. The author describes some key dimensions of the rise of ‘roaring banking’ in the USA in recent decades, outlines specific ways in which this financialized system has affected accumulation, distribution and growth, and presents some results of a simple ‘bottom†line’ analysis of the cost of this financial system in the US, reaching the conclusion that the ‘social efficiency’ of modern finance in the US is very low.