The Market: A Positive Sum Game

When financial markets channel funds from savers to investors, who benefits?

The simple answer to that question is that everyone benefits when financial markets channel funds from savers to investors. The saver, who might have very few options about where to put her money – in the book the author jokes about putting it under the mattress – with a functioning financial system can achieve greater return on her money. The investor wins because they now have capital. Having an idea to make or do something novel to fill a niche in a marketplace is worthless unless you have capital to invest. With a healthy financial market, you can go and get funds to facilitate your new idea that helps you undercut the local taxi market or local hotel market. Your idea can come to fruition when previously you had top hope to be individually wealthy or have the right connections.

Photo by Lorenzo from Pexels

 But there’s more! By facilitating that transaction, where the savers and the borrowers benefit, it is not isolated to those parties. Society benefits, as there is now the thing that was not existing in our alternate world without good financial markets. You have Uber instead of calling a cab and hoping that their credit card machine isn’t “broken”, and they are ok with driving you to your neighborhood at that time of night.

And then, for their efforts, the financial market makers get a nice little sliver of the action to reward them for their coordination efforts. Just a little though.