Has the finance industry become less efficient? Or Where is Wal-
Mart when we need it?  Thomas Philippon 02 December 2011    The
role of the finance industry is to produce, trade, and settle
financial contracts that can be used to pool funds, share risks,
transfer resources, produce information, and provide incentives.
Financial intermediaries are compensated for providing these
services.  Measuring financial intermediation  The sum of all
profits and wages paid to financial intermediaries represents
the cost of financial intermediation. I measure this cost from
1870 to 2010, as a share of GDP, and find large historical
variations, shown in Figure 1 (with the various data sources,
see Philippon 2011 for details). The cost of intermediation
grows from 2% to 6% from 1870 to 1930. It shrinks to less than
4% in 1950, grows slowly to 5% in 1980, and then increases
rapidly to almost 9% in 2010. The pattern remains the same if
finance is measured as a share of services, and if net financial
exports are excluded.  Fig