# Can someone justify the finance industry? **URL:** \ **Category:** Great Debates\ **Created:** [December 17, 2010, 2:35am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461 "2010-12-17T02:35:19Z")\ **Posts on this page:** 15\ **Page:** 2
**Author:** ![Deeg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/deeg/32/2955_2.png) [@Deeg](https://boards.straightdope.com/u/Deeg)\ **Post date:** [December 18, 2010, 5:10am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/21 "2010-12-18T05:10:53Z")
If the finance industry is not bringing any benefits who is putting them to work? To my knowledge there are no laws mandating their existence. So _somebody_ thinks they’re worth paying. ---
**Author:** ![godix](https://avatars.discourse-cdn.com/v4/letter/g/278dde/32.png) [@godix](https://boards.straightdope.com/u/godix)\ **Post date:** [December 18, 2010, 6:14am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/22 "2010-12-18T06:14:54Z")
> [@sss3d](#): > > I created an automated stock trading algorithm based on trend trading which achieved a 1% return per year. > > I guess that creates no “benefits” for anyone right? You’re right, that doesn’t. The average inflation rate is around 3%. So your stock trading algorithm is actually losing about 2% a year after adjusting for inflation. It is hard to think of how that could be considered a benefit. Out of curiosity, you obviously think finance, business, entrepreneurship, and the arts are all pointless. What exactly is it that you think you can learn that will ‘help people out some way’ considering you just wrote off the methods to make people wealthy, finance anything that may improve people’s lot in life, or create anything that speaks to their soul? ---
**Author:** ![DrCube](https://avatars.discourse-cdn.com/v4/letter/d/a3d4f5/32.png) [@DrCube](https://boards.straightdope.com/u/DrCube)\ **Post date:** [December 18, 2010, 2:42pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/23 "2010-12-18T14:42:14Z")
> [@msmith537](#): > > “Entrepreneurship” involves people who are clever coming up with new ideas for products or services that they think people might like to use. Every giant corporation, no matter how large, started with some guy who said “I have an idea on how we can do that”. I know you’re a smart guy, and maybe Donnie and I are out of our element, but I don’t think “cleverness” is the main contribution of entrepreneurs. Their main value is in taking a risk. You may have an old, mundane, boring idea that plenty of people have thought of before, but if you are the first person to risk a large amount of capital on that idea, you have created a lot of value for society (assuming you eventually succeed). Often, it isn’t just capital that is risked by entrepreneurs, but long, backbreaking hours of labor in support of an idea that could easily fail. Imagine putting hundreds of thousands of your own dollars into a business and then working 15 hours a day 6-7 days a week for years in order to support that business only to have it fail. Some (if by no means all) entrepreneurs are literally risking their lives on little more than the hope of success. Even if they’re the greediest bastards in the world, looking only to hit the business jackpot, they’ve provided a benefit to society by taking a risk few would be confident enough to take. So that’s valuable. In fact, almost everything of value in this world (outside of basic natural resources) was provided to us through the efforts of small groups of people risking huge sums of money and large portions of their lives in order to get it to us. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [December 18, 2010, 7:03pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/24 "2010-12-18T19:03:13Z")
> [@DrCube](#): > > I know you’re a smart guy, and maybe Donnie and I are out of our element, but I don’t think “cleverness” is the main contribution of entrepreneurs. Their main value is in taking a risk. You may have an old, mundane, boring idea that plenty of people have thought of before, but if you are the first person to risk a large amount of capital on that idea, you have created a lot of value for society (assuming you eventually succeed). Like I said. “clever”.🙂 Most of what you said is pretty much correct. It takes a combination of seeing the right idea and having the initiative to take a risk to pursue your goal. I wouldn’t say they are “risking their lives” for the most part. Some people save up money beforehand. Some work on their business in their spare time until it gets off the ground. Others get professional financing. I have to think taking out a triple mortgage for a Hail Mary business idea is the exception, not the norm. One of the things they taught us in business school was to make sure you have enough financing to pay for a decent salary for about 5 years. You don’t want to be trying to get your business off the ground while you are worrying about paying the mortgage and buying food. ---
**Author:** ![not\_alice](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/not_alice/32/7283_2.png) [@not\_alice](https://boards.straightdope.com/u/not_alice)\ **Post date:** [December 18, 2010, 11:48pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/25 "2010-12-18T23:48:53Z")
> [@msmith537](#): > > One of the things they taught us in business school was to make sure you have enough financing to pay for a decent salary for about 5 years. You don’t want to be trying to get your business off the ground while you are worrying about paying the mortgage and buying food. That depends on the nature of the business (model). In my industry and others, businesses will have grown and succeeded or failed in less than 5 years. Even in the case of grand success, the founders are more often than not on to the next thing by then. In either case, through the miracle of finance, the efforts of many can be leveraged for the quick burst it takes. ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [December 19, 2010, 5:41am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/26 "2010-12-19T05:41:46Z")
> [@DrCube](#): > > I know you’re a smart guy, and maybe Donnie and I are out of our element, but I don’t think “cleverness” is the main contribution of entrepreneurs. Their main value is in taking a risk. You may have an old, mundane, boring idea that plenty of people have thought of before, but if you are the first person to risk a large amount of capital on that idea, you have created a lot of value for society (assuming you eventually succeed). While I don’t disagree with this (or the rest of the post), in my experience, a good entrepreneur not only takes in risk, which he displaces with his own labor, but also manages to raise capital and convince others to take a risk along with him. Yes, it sounds like I’m just saying that a good entrepreneur needs to be a good fund raiser. But, it really goes beyond all that, i.e. to sell the idea and make others believe, believe in it so much that they are willing to risk money and trust this entrepreneur with controlling the funds and leading the company. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [December 20, 2010, 2:39am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/27 "2010-12-20T02:39:08Z")
> [@not\_alice](#): > > That depends on the nature of the business (model). In my industry and others, businesses will have grown and succeeded or failed in less than 5 years. Even in the case of grand success, the founders are more often than not on to the next thing by then. > > In either case, through the miracle of finance, the efforts of many can be leveraged for the quick burst it takes. I referring more to the old fashioned concept of starting a business that will end up as a going concern. Not as a get rich quick scheme to get bought out by Google or Microsoft. ---
**Author:** ![not\_alice](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/not_alice/32/7283_2.png) [@not\_alice](https://boards.straightdope.com/u/not_alice)\ **Post date:** [December 20, 2010, 2:52am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/28 "2010-12-20T02:52:23Z")
> [@msmith537](#): > > I referring more to the old fashioned concept of starting a business that will end up as a going concern. Not as a get rich quick scheme to get bought out by Google or Microsoft. So your position is closer to the OP’s in that you only see some sorts of finance and investment as worthwhile? If you believe in the shared risk of finance and partial ownership of abstract items (and I am pretty sure you do) then what are you objecting to exactly? The methods that are available to capture the rewards (if any) for the risk taken? Would you not allow stocks or stock exchanges? That is just weird! Or maybe you object that large companies don’t take 100% of the risk in seeking innovation in their spaces? What size were google and Microsoft when they started by the way? Fewer people than at the typical dinner table right? So when did they cross some sort of rubicon (which I hope you will define for us) to find that in your view the rules had changed? ---
**Author:** ![not\_alice](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/not_alice/32/7283_2.png) [@not\_alice](https://boards.straightdope.com/u/not_alice)\ **Post date:** [December 20, 2010, 3:08am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/29 "2010-12-20T03:08:52Z")
Also, sinc eyou used the words, I wonder how you define “a going concern”? Is it based on some sense of nobility of labor? On the nature or complexity of the corporate form? Is it based on some sort of averages that a company strives for? Some particular capital structure ? Operating on a cash basis only? E.g. very few restaurants, a very very common mom and pop business last more than 3, or let’s be generous and say 5 years. Do you object to investment in restaurants, since they so rarely become a going concern? Do you object to the ones that grow, and then sell out to another dining company? What if the goal is to grow big enough and attractive enough to be acquired by McDonalds, such as Chipotle and others have done. Is that somehow less desirable than a burrito place with a single location that has been there 6 months? 6 years? 30 years? I am really confused by your post! ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [December 20, 2010, 6:22am UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/30 "2010-12-20T06:22:10Z")
> [@sss3d](#): > > I don’t see how it creates value for people > > learning how to find arbitrage opportunities and the likes. > > I feel the finance industry is even WORSE than the “business” “entrepreneurial” industry. > > thanks The justification is that industrial capitalism is impossible without it. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [December 20, 2010, 7:48pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/31 "2010-12-20T19:48:03Z")
> [@not\_alice](#): > > So your position is closer to the OP’s in that you only see some sorts of finance and investment as worthwhile? No, I see financing and investment as worthwhile when it actually is worthwhile. IOW, when it will actually turn a profit. It’s as simple as that. > [@not\_alice](#): > > If you believe in the shared risk of finance and partial ownership of abstract items (and I am pretty sure you do) then what are you objecting to exactly? The methods that are available to capture the rewards (if any) for the risk taken? Would you not allow stocks or stock exchanges? That is just weird! > > Or maybe you object that large companies don’t take 100% of the risk in seeking innovation in their spaces? > > What size were google and Microsoft when they started by the way? Fewer people than at the typical dinner table right? So when did they cross some sort of rubicon (which I hope you will define for us) to find that in your view the rules had changed? > > Also, sinc eyou used the words, I wonder how you define “a going concern”? > > Is it based on some sense of nobility of labor? On the nature or complexity of the corporate form? Is it based on some sort of averages that a company strives for? Some particular capital structure ? Operating on a cash basis only? > > E.g. very few restaurants, a very very common mom and pop business last more than 3, or let’s be generous and say 5 years. Do you object to investment in restaurants, since they so rarely become a going concern? Do you object to the ones that grow, and then sell out to another dining company? What if the goal is to grow big enough and attractive enough to be acquired by McDonalds, such as Chipotle and others have done. Is that somehow less desirable than a burrito place with a single location that has been there 6 months? 6 years? 30 years? > > I am really confused by your post! I’m not sure how you managed to pull all of that out of your ass from my statement, but let me clarify. The term “going concern” (for those of you who are not familiar) is a business term meaning a company that is at a point where it is stable, profitable and likely to continue operating into the foreseeable future. IOW, it is not dependent on constant infusions of capital from investors. It does operate using an unsustainable business model like a pyramid or ponzi scheme. And it actually provides a real product or service and not some theoretical ‘vaporware’. When I hear about ‘entrepreneurs’ who have started a bunch of different companies only to have sold them after a few years or business plans that talk about “exit strategies”, that raises some red flags for me. I have to wonder why, if they were such great ideas, they were so eager to sell them before they had a chance to really take off. Are they actually trying to create a real business or is the intent simply to take a vague idea or glom onto a trend, get a bunch of financing and then make a lot of noise in hopes of enticing someone to think they are worth buying? ---
**Author:** ![UltraVires](https://avatars.discourse-cdn.com/v4/letter/u/ecccb3/32.png) [@UltraVires](https://boards.straightdope.com/u/UltraVires)\ **Post date:** [December 24, 2010, 4:26pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/32 "2010-12-24T16:26:15Z")
> [@msmith537](#): > > When I hear about ‘entrepreneurs’ who have started a bunch of different companies only to have sold them after a few years or business plans that talk about “exit strategies”, that raises some red flags for me. I have to wonder why, if they were such great ideas, they were so eager to sell them before they had a chance to really take off. Are they actually trying to create a real business or is the intent simply to take a vague idea or glom onto a trend, get a bunch of financing and then make a lot of noise in hopes of enticing someone to think they are worth buying? Of course not. You are being much too cynical. Some people simply like starting businesses and do not like running them. They want to start a business, make the business viable, or a going concern, make some money (and before you think this is bad, they must develop something of value before they make money, right), and then move on to their next start-up. What is wrong with that? ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [December 25, 2010, 6:29pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/33 "2010-12-25T18:29:31Z")
> [@msmith537](#): > > I’m not sure if I should be offended, frightened or merely concerned by the OP. I get that he is a college freshman, however I find it almost bizarre that he does not grasp the basic concepts of finance, business and entrepreneurship and considers it “useless”. > > While each one of these concepts is a topic unto itself, let me see if I can summarize it in one grand unifying theory in an attempt to fight ignorance. > > Everything around you that is man-made, the computer you are using, the coffee you drink, the house you live in, the clothes on your back, comes at the expense of someone elses labor. “Business” is humanity’s attempt to organize society so that people can trade goods and services and convert raw materials into the shit we use every day. > > “Entrepreneurship” involves people who are clever coming up with new ideas for products or services that they think people might like to use. Every giant corporation, no matter how large, started with some guy who said “I have an idea on how we can do that”. > > And “finance” is basically how it all gets payed for until it becomes self sufficient. IOW, you may have the greatest idea in the world, but you probably don’t have enough money to get it off the ground. The finance industry helps people by providing money so that new businesses can be created or existing businesses can expand. Of course, they expect to be paid back with interest. > > It lets you distribute risk in a more predictable manner. > > That’s terrible. You can achieve a higher return by guessing. An entrepreneur starts and organizes a business. He does not have to come up with a new concept. People start restaurants every year. They don’t have to invent restaurants, just run one successfully to make money. ---
**Author:** ![Koxinga](https://avatars.discourse-cdn.com/v4/letter/k/4af34b/32.png) [@Koxinga](https://boards.straightdope.com/u/Koxinga)\ **Post date:** [January 4, 2011, 2:25pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/34 "2011-01-04T14:25:28Z")
Well, that’s just what _I_ was thinking… ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [January 4, 2011, 2:27pm UTC](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461/35 "2011-01-04T14:27:19Z")
> [@On another topic](https://boards.straightdope.com/t/566424/1): > > wait so there was some methadone in a cupboard, the child was being looked after by its grandmother, the child somehow injesting the methadone and now theyre trying to press charges against a man who wasnt even there when it happened and most likely had a prescription? wtf? Be fair, be fair. **Sometimes** the finance industry acts like a pusher. [Previous page](https://boards.straightdope.com/t/can-someone-justify-the-finance-industry/564461.md?page=1)