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I've just found a random single statement about the overall money going into financial services:

With global GDP expected to reach $93 trillion in the same year, that would mean that financial services comprise about 24% of the world's economy. (2021)

So it seems the global economy is "investing" about a quarter of all ressources into "financial services". As those per definition produce no goods or non-financial services, the things left they do is to produce information and assert some control over things happening in the remaining economy I guess.

So I wonder if investing a quarter of resources is a realistic price for those services, given it's all about unproductive in itself meta-services that need to pay off at another place? Why is so much money needed for this? Would shrinking some of these services result in equal damages outside the sector itself?

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So I wonder if investing a quarter of resources is a realistic price for those services, given it's all about unproductive in itself meta-services that need to pay off at another place?

A priori without some research showing there is something going wrong there is nothing unrealistic about it.

Moreover, your claim that this is unproductive sector is clearly not true.

  1. Most of these services are purchased voluntarily not out of compulsion so the sector clearly generates value.
  2. I don’t see how let’s say executing transaction in safe and quick manner, safekeeping of assets, financial intermediation etc is somehow meta-service.

People clearly derive utility from safe storage of their money for example. People used to pay for safe keeping of various assets, their safe transfer from one person to another, essentially from the birth of civilization. Even ancient Sumerian civilization already had quite advanced financial system (see Ferguson Ascent of Money Ch 1).

What even more studies clearly show that well developed financial sector has first order effect on economic growth because capital markets allow for more efficient allocation of investment which is what generates growth in an economy (Levine 2005). This is not necessary case with sectors such as entertainment industry, so not only you can say financial sector is productive, but it even generates extra productivity in other sectors.

Furthermore, if it’s a quarter of yearly GDP it’s quarter of yearly income. This is much smaller than quarter of all resources available to society. Also, not all of this amount can be considered investment.

Why is so much money needed for this?

The share of any industry of GDP is typically calculated as % of GDP created by that industry.

GDP (by income approach) is given by sum of wages, interest payments, rents and profits. Hence this represents all wages of people in financial industry, all interest rate earned by the industry, all profits earned and all rent earned by the industry.

You can’t expect SE answer to track every individual employee of a firm and justify their wages. Maybe some people managed to negotiate better wages than their personal productivity would command on perfect labor market, but that can be true in any industry.

Are all services provided by the financial sector of same utility in the end and reasonable priced?

  • Every service has different utility to different people. Hence, save for special circumstances, most services won’t have exactly the same utility.
  • Economics does not know concept of “reasonable price”. Economically any price for let’s say bag of chips could be reasonable. Even billion dollars.

If there is someone in an economy willing to pay some price it means that for that particular individual the utility of the good or service exceeds the utility of money paid. Hence for that particular person the price is reasonable. There isn’t any generally reasonable price.

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  • $\begingroup$ The term meta-service I coined as money (in all of it's form) is always a mean, not the end effect. So basically managing or moving money or share information or execute control over it is meta in respect to the end effect (product or service) that is given in exchange by that money. The money itself can circulate of course, a meal or haircut would not so. Storing or managing money on the other hand provide no end effect, only movement of the means (money) or information on how to use it. $\endgroup$
    – dronus
    Mar 31 at 16:10
  • $\begingroup$ Also on the word 'productive' - in terms of money, the money-sector is not productive, it only shifts money around. Despite central banks of course. $\endgroup$
    – dronus
    Apr 11 at 14:48
  • $\begingroup$ @dronus productivity is defined as ouput over inputs, financial sector is productive because the output is larger than inputs since it adds value $\endgroup$
    – 1muflon1
    Apr 11 at 15:03
  • $\begingroup$ What is "output" in this case? Contracts? Money? What is the input? The fees for the services? I am just out of clue which of our words are just english words and which are economics termini, as I have no academical education in economics. $\endgroup$
    – dronus
    Apr 11 at 15:15
  • $\begingroup$ @dronus output is price*quantity produced by the industry, typically when we talk about output we also mean real output i.e. inflation adjusted. Inputs are the costs of the industry, wages, rents etc paid to produce the output. Again they can be measured in dollars (you can measure both output and inputs in any unit of measure that measures value). $\endgroup$
    – 1muflon1
    Apr 11 at 15:35

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