I’d always been under the impression that the financial system was in the business of transferring wealth between people. For instance, money could leave your pocket and go into a bank. From there, it could make its way to other places, like the stock market, eventually ending up in the pockets of scam artists. One day you’re the hard-working schmuck, the next you’re the conman, and another you’re the lender of a loan. But whatever the scenario, I thought of the entire system—money, banks, governments, pawn brokers, stock markets and all that sort of thing—as the medium over which wealth changed hands.
That’s what is really going on, isn’t it?
Earlier today, it dawned upon me that from the perspective of an individual (me perhaps, or a company, or even a country!), the financial system only serves one purpose: To time-shift our wealth.
When you have more money on hand now than you possibly need, you move it into the future with the help of the financial system. You do this through your savings accounts, investments and other things of that nature. Likewise, when you’re in need of money that you don’t currently have, you again turn to the financial system (loans, credit cards, etc.) to draw from your future wealth.
I am not sure if this insight I’ve stumbled upon is a well-established notion, but I find it pretty cool. Putting things in the perspective of the individual (me) clarifies to me why trillions of dollars are being spent salvaging financial systems around the world. We don’t just want to give the CEO of Goldman Sachs yet another gold-plated yacht, we are desperate to hold onto our ability to time-shift our wealth; ensuring our decisions aren’t determined entirely by how much money we have in our pockets at any given time.