Great Arbitrageurs are our Great Inventors
There might be an brilliant inventor who could find a way to get oil out of the ground for half the price Yet finding a trader that can use his knowledge on the commodity market to get the same oil for half the previous price is equally as useful.
There is an obsession among policy makers and the general public with manufacturing. Manufacturing is deemed socially superior to financial services. This is a fallacy. Often the financial services are lumped together as “bankers”, who presumably just move money around. Some misled economist even believe that a Tobin tax would move talented people with strong work habits – into other activities, which will benefit the economy more.
If this were truly the case, some great entrepreneur could use his unique knowledge to reap the rewards of the benefits these great minds (which are presumably currently underproducing), may have elsewhere in the economy. Distributing workers where they are most productive is a valid occupation for our labour market arbitrageurs.
Denationalisation of Money, Hayek
Good Money, George Selgin
More Sex Is Safer Sex: The Unconventional Wisdom of Economics
Niall Ferguson, The Ascent of Money: A Financial History of the World
The Austrian School, Jesus Huerta de Soto
The Big Short, Micheal Lewis
The Extended Society 
Dear Henry,
I cannot agree with your blog on traders. I know traders do a great and relevant job, without them the market would have less pricing signals and would therefore function less well. The problem is that the rewards traders were getting are relatively high, encouraging a brain drain from other sectors of the economy. These other sectors such as manufacturing need talent to survive in the global battle. The reason that manufacturing is worth fighting for is that it employs relatively lowly skilled people and as such provide a very valuable social service. Something banks and trading houses just do not do to the same extent.
Felix
I think it would be foolish to assume that manufacturing creates more jobs for the less well educated. Arbitrageurs may be creating a very valuable social service in a less obvious way than working in the same firm with lower skilled employees.
I am sure that there are many less well educated picking tomato in greenhouses. They may not realise that Vattenfall is hedging (and taking) part of their energy risk. The greenhouse owner may even use the extra profit, that would not exist without a properly functioning market, to expand the business. If the greenhouse owner would do better hiring the trader and employing him in at his greenhouse he is welcome to do so, but must pay the wage.
You do have a point when it come to government support (bail-outs) for financial services. When the arbitrageur makes a mistake he should stand to loose. Both manufacturing and financial services should compete for talent on a level playing field.
To follow up on your example regarding horticulture. Yes they often earn more selling their power than they do selling their traditional ware. At Vattenfall the reason for buying the power form horticulturalists is that they offer their power at a price that is lower than if we were to produce it ourselves. This purchase is logical asset management and does not really require a derivatives specialist. Trading at Vattenfall is done on behalf of our clients, to source our own power need and the so called proprietary trading. The question is whether the latter is very important to our economy. I concede that it creates liquidity and as such is relevant for price setting which is important to the horticultural sector.I wonder though whether we as a society would not be better of if those clever trading brains would be put to use elsewhere on the productive side of the economy