What are banks good for?

A business manager will meet systematically the Financial System - a group formed mainly by banks, but also by insurers and the stock exchanges.

In the capitalist world, this meeting is inevitable. Now, with economic crises - and the reactions to - that have emerged since 2008, much discussion takes place around the role that the Financial System plays or should play in the economy.

But, after all, what good this system bring? We can live without it? Why is it so important? Can a crisis in this system drag the rest of the economy?

To understand the role of banks, we need to understand how capitalism works. Some people are the owners of capital in the form of cash or property or means of production, like machines. And other people are owners only of their workforce. The first are the capitalists or bourgeoisie, the latter are workers or laborers.

Im a simply form, economy works through the exchange of goods by commodities or commodities for money and vice versa. These transactions are in a very short term and take place in sight. However, when we think of exchanges more complexes or larger projects, the capital has to make a loop composed of transforming money into commodities for the production (which combines production and labor), store the products, sell them, to recover the money with profit, reinvest the money in the production of new goods and the circle restarts. This cycle happens over time. The longer it takes to complete the cycle, the longer the money stood in some of the steps.

For more major accomplishments, such as the construction of a building, you can not make everything in sight: it is necessary to buy land, buy the bricks, cement, pay the workers. This requires a large amount of money or property that to pay cash, you can not join - unless you take the time from one or many lives.

This is where the financial system lives: it exists to ensure the future bets. By providing credit, it allows steps to be shortened and even overlapping. In the case of construction of a building, the citizen can buy land for construction using four apartments yet to be built as payment, may borrow money to pay the firsts salaries, can buy the bricks to pay later. These transactions require trust between the agents of the economy: bourgeois, workers, banks, buyers.

That's the reason to a capitalist economy can't function without banks. They are the guarantors of bets on the future and allow the acceleration of the economic process in time, without which larger or more complex projects are simply not possible to accomplish, because they can not be paid in cash.

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