Fragility in Plain Sight

The financial system depends on human input more than it admits. Ignoring that fact is the real systemic risk.

114,942 families. That’s how many retirement accounts it takes to aggregate $10 billion of investable capital, according to the Federal Reserve’s 2022 Survey of Consumer Finances. Put another way, if you zoom out to today’s markets, a single company like Nvidia (trading at a market capitalization of $4.29 trillion) effectively embodies the retirement savings of 49,310,344 families.

That is the hidden weight of public markets: corporate valuations aren’t abstract numbers; they are the collective promises that households have made to their futures. When investors mark a stock higher or lower, they are implicitly re-pricing the retirement, healthcare, and generational security of millions of households.

The financial system is the machinery that makes this possible. Its obvious function is to move money around: to collect deposits, transfer payments, and fund investments. But beneath that mechanical layer, its deeper function is to mediate trust. A pension fund in California can place capital into a private equity firm in New York, which then funds a manufacturer in Ohio. None of the parties know each other directly. What connects them is the system’s ability to turn isolated pools of capital and labor into coordinated flows of trust.

Capital allocators sit at the center of this system. They don’t merely distribute cash, they are the stewards of trust. Because allocation happens across time (–Cash today; +Expectation of return tomorrow), they carry a unique burden: ensuring that collective trust is converted into enduring value, rather than wasted or drained through short-term arbitrage. Their decisions, in aggregate, determine whether society’s stored effort and innovation are compounding for tomorrow, or being consumed today with little left behind.

Carnegie’s Warning

This burden of stewardship is not a new idea. In the late 19th century, Andrew Carnegie wrote his Gospel of Wealth to frame the role of capital holders in society. His argument was blunt: those who control concentrated wealth bear a responsibility to direct it toward long-term social benefit. To Carnegie, leaving vast sums idle, or worse, squandered on private indulgence, was a betrayal of the trust implicitly granted by society.

Carnegie’s era was marked by industrial fortunes that dwarfed the savings of ordinary households, just as today’s financial markets dwarf individual retirement accounts. Yet the principle he raised still applies: when a small group of allocators holds the financial weight of millions of families, the question isn’t whether they will create impact, but whether that impact will be compounding or extractive.

Carnegie framed the duty of wealth as a moral question. Today, it is also an analytical one. If finance exists to intermediate trust across disconnected networks, then the effectiveness of allocators can be measured by whether that trust translates into durable value creation or evaporates into zero-sum arbitrage.

Back to Basics

At its foundation, money is nothing more than a social technology. Economists generally agree it serves three primary functions:

1. Medium of Exchange – It enables trade of goods, services, and value between otherwise disconnected parties.

2. Unit of Account – It standardizes measurement, allowing us to compare and reconcile values across domains.

3. Store of Value – It preserves value over time, letting us shift trust and purchasing power from today into the future or, via debt, from the future back into today.

Each of these functions is critical, but it is the store of value dimension that directly connects money to stewardship. A paycheck deposited in a bank account, a contribution to a retirement plan, or a share purchase in the market all reflect the same expectation: that value created today can be held, trusted, and ultimately drawn upon tomorrow.

This is why money cannot be understood narrowly as “cash in the bank.” It is better thought of as a mechanism for storing and transmitting trust across time and space. A dollar today is not just a medium of exchange, it is also an accounting claim on collective effort, resources, and innovation. And when multiplied across balance sheets, these claims form the backbone of the financial system.

By combining the unit-of-account and store-of-value functions, finance gives us the concept of the balance sheet. Assets and liabilities, expressed in monetary terms, allow individuals, companies, and nations to translate an infinitely complex set of obligations, resources, and opportunities into a single coherent framework. Without that abstraction, coordinated investment (whether a family buying a home or a society funding infrastructure) would be impossible.

Which brings us back to capital allocators. Their role is not just to count assets or move liquidity. It is to determine if the trust stored on balance sheets is transformed into durable future capacity.

Financial Systems and the Use of Money

If money is the mechanism for storing and transmitting trust, then the financial system is the machinery that scales that mechanism. Its role is not just to record value, but to enable value to move fluidly between parties who would otherwise have no basis for trust.

By reducing ownership and obligation into assets and liabilities, balance sheets allow firms, households, and governments to communicate in a common language. This translation matters: it makes a farmer’s land, a factory’s machines, and a startup’s intellectual property comparable and exchangeable within the same system.

Standards like GAAP bring a degree of consistency to this abstraction, but the deeper truth is that all balance sheets are ultimately expressions of trust. Assets are valuable only if others will accept them; liabilities are binding only if enforcement is trusted. Without trust, even the cleanest balance sheet collapses into noise.

This is also why banks and financial institutions are granted the extraordinary ability to create money. Through fractional reserve banking, new credit can be generated when trust in repayment exists:

• Lend Money | Bank: –Cash; +Loan Asset

• Borrow Money | Company: +Cash; –Loan Liability

• Deposit Cash | Company: –Cash; +Bank Account Asset

• Receive Deposit | Bank: +Cash; –Deposit Liability

At first glance, this is just accounting mechanics. But the deeper point is that cash is neutral on the balance sheet, it cycles endlessly without creating or destroying value. Real economic impact only occurs when borrowers deploy that cash into the market, investing in assets, paying wages, or funding innovation.

In other words:

• Investors pass trust to borrowers.

• Borrowers convert trust into real-world action.

• The financial system records, circulates, and enforces this trust.

This framing raises the critical question: where does the underlying trust originate, and what sustains it over time?

It’s Balance Sheets All the Way Down

To see where trust originates, it helps to trace a simple transaction: the paycheck.

• Receive Paycheck | Employee: +Cash; +Net Income

• Provide Paycheck | Company: –Cash; –Net Income

On the surface, this looks like a raw deal for the company, it loses cash and books an expense. But something is missing. The company is not simply giving money away; it is paying for the inflow of productive capacity.

Run the sequence again:

• Employee Work | Company: +Productivity (output, services, innovation); +Net Income

• Employee Work | Employee: –Time & Effort; –Energy

Now the picture balances. Net income at the firm level emerges not from thin air, but from the application of human time, effort, and increasingly, ingenuity. This is the first and most fundamental inflow of value into the system.

Yet it would be incomplete to say all value comes only from labor. A factory worker’s output is magnified by machinery, just as a software engineer’s output is multiplied by the code libraries, cloud infrastructure, and AI tools at their disposal. Innovation, whether embedded in technology, process design, or organizational methods, amplifies human effort and allows the same units of time to yield exponentially more value.

This is why two economies can work the same number of hours yet produce radically different levels of wealth. The difference lies in accumulated innovation and capital stock: the inventions, systems, and intellectual assets that expand the productive capacity of human effort.

In this light, the financial system does more than circulate trust, it actively determines how much of society’s time and ingenuity is directed toward compounding future value versus sustaining present consumption. Each balance sheet entry reflects a choice: is trust being stored, allocated, and magnified, or is it being spent down?

This framing leads directly to the role of capital allocators. If time and innovation are the true sources of value, then allocators’ real responsibility is to decide how those inputs are priced, combined, and deployed across the economy.

We Allow Capital Allocators to Manage Our Time

If value ultimately enters the system through human time and ingenuity, then the question becomes: who decides where that time and ingenuity are directed? The answer is capital allocators.

Banks, investors, and corporate managers don’t create value directly. Instead, they determine where society’s trust is concentrated. By extending credit, allocating investment, or approving budgets, they choose which projects, technologies, and people get the chance to transform effort into outcomes. Put differently: allocators are not simply moving money, they are orchestrating where human hours and human creativity are applied.

Consider the flow again in balance-sheet terms:

• Employee Deposit | Employee: –Cash; +Bank Account Asset

• Receive Deposit | Bank: +Cash; –Deposit Liability

• Lend Money | Bank: –Cash; +Loan Asset

• Borrow Money | Company: +Cash; –Loan Liability

• Deploy Capital | Company: –Cash; +Assets (equipment, R&D, payroll)

• Employee Work | Company: +Productivity & Innovation; +Net Income

• Employee Work | Employee: –Time & Effort; –Energy

In this loop, the only true “new” inflow comes from time applied to productive effort and innovation embedded in tools, processes, or ideas. Everything else is just a recycling of trust across balance sheets.

This reality creates three interlocking responsibilities:

1. Lenders & Investors must select allocators who can channel trust effectively.

2. Capital Allocators must price and deploy not just labor hours, but the innovation that amplifies them.

3. Employees accept wages in exchange for ceding autonomy, trusting that their effort is part of a larger system that will generate value over time.

Seen this way, financial markets are not casinos or neutral platforms. They are decision-making hierarchies where allocators set the tempo of society’s work and creativity. Arbitrage and short-term spreads may generate paper profits, but over the long run the system’s expansion depends only on how effectively allocators direct time and innovation toward compounding value.

Which brings us to the uncomfortable but unavoidable conclusion: if capital allocators prioritize extraction over stewardship, they misallocate the future itself.

Closing the Loop

We began with families, the 114,942 accounts it takes to assemble $10 billion, and the 49 million families whose futures are implicitly priced into the valuation of Nvidia. We passed through Carnegie, who argued more than a century ago that concentrated wealth carries concentrated responsibility. And we unpacked the mechanics of money, balance sheets, and capital allocation to show where value actually enters the system.

The thread tying this together is straightforward: the financial system intermediates trust, but the trust ultimately rests on two inputs, human time and human ingenuity. Every cycle of lending, investing, and balance-sheet expansion is downstream of these contributions.

And yet, here lies the paradox: in practice, the system persistently underprices the human component. Labor is treated as a cost to be minimized, while capital and technology are priced as assets to be maximized. But if the only true inflows of value are time and innovation, then systematically squeezing labor, whether through stagnant wages, eroded job security, or transactional allocation of human effort, is a long-term drag on the very trust the system depends on.

For allocators, this mispricing shows up in subtle ways:

• Growth projections that assume labor is infinitely flexible without accounting for burnout, turnover, or lost tacit knowledge.

• Models that discount the compounding effects of innovation until it’s already captured in capitalized IP, ignoring the human creativity that produces it.

• Valuation frameworks that overweight arbitrage spreads and underweight the durability of the underlying workforce and inventive capacity.

In the short term, these omissions look like efficiency gains. In the long term, they resemble eating the seed corn.

This is where stewardship comes back into focus. The allocator’s true responsibility is not just to chase spreads or reprice risk, but to decide whether society’s scarce units of time and ingenuity are being directed toward compounding value or drained in ways that undermine future capacity.

And here is the larger risk: if the system continues to underprice its human foundation while concentrating the rewards of capital, incentives will break down. Households will lose the belief that their time and ingenuity will be rewarded fairly, and with it, their willingness to keep entrusting effort and innovation to the system. Once that belief collapses, the structure cannot hold. Politics will step in, and the result will be a forced rebalance toward systems that stabilize income but limit upside incentives; closer to the social-democratic models where security is prioritized, but returns and growth are structurally moderated.

Markets can weather volatility, but not a collapse in trust. If imbalance grows too large, adjustment will not come gradually. It will come as a sudden repricing. And when that moment arrives, it will not be families that failed the system, but the system that failed the families.

For families entrusting their savings to the system, and for allocators charged with deploying trillions on their behalf, the real test is simple: will the trust stored today be worth more tomorrow? Or will it be consumed, leaving balance sheets swollen with liabilities but hollowed of their foundation?

Carnegie saw wealth as carrying a moral obligation. Today, we can phrase it more analytically: allocators who underprice human input are mispricing the very collateral the system is built on. And mispriced collateral, as every investor knows, is the surest path to systemic fragility.