Investing

So, a lot of people make money by investing in assets that either increase in value or that return a profit. Banks work this way… they're basically large organized investing companies. So what effect do these investors have on the overall wealth of the nation?

Investors make money without actually producing any wealth. From previous discussions, these can be seen as a drain on the system. They are dependent on others for their wealth.

So why do we encourage and promote investing? Why is it considered good for the economy?

The key to good investing for an economy is that the investment goes to the production of wealth. What an investor is doing is giving the necessary capital to a producer to allow them to produce. The expectation is that the producer produces enough wealth from his new project to share with the investor. The investor becomes a dependent of the producer that he is investing in.

Why is this okay? Firstly, just because an investor has made himself a dependent on another's production doesn't mean that he is solely dependent on that production. Most common investors have their own job and produce their own wealth, enough to sustain themselves and a more (that's why they have a surplus to invest with). By becoming a dependent as well, they can earn a little extra money. But they aren't society leeches.

Secondly, and more importantly, the investment made causes the production of wealth that wasn't being produced before. If the new wealth created surpasses the wealth spent in creating the new production, the investment has created an overall wealth in the system. As a reward for the assistance in creating that wealth, a return payment (interest) from part of the profits is made.

Investing in productive businesses builds wealth. The investor is not creating the wealth, but he is making the creation of wealth possible where it may not have been before.

On the flip side, there is also a lot of investing in things/businesses that do not produce wealth. A couple of examples of this might be real estate (particularly short sales and other similar real estate strategies) and get rich quick schemes. Unless you're building a new house or improving an existing one, there is no new production in real estate. Instead, investors are dependent on the increase in value of their property. Of course, porperty value is dependent on many things, but primarily it is dependent on the growth of wealth in the economy. Therefore, real estate investors make their money from the wealth produced by others, and do not build any wealth themselves. As it is, it is a leeching investment.

Most get rich quick schemes are actually desinged to be leech schemes. Wealth of the economy is waiting to be had, you just have to know the tricks to snagging your share. It is designed for the lazy and uneductaed to take advantage of wealth surplusses without making a return contribution. They are despised by honest workers with good reason.

If all investments were such, the economy would fail. I'm not saying investing in real estate is necessarily bad. When properties are increasing in value, if you don't own those properties, someone else is benefitting from the increased values. But the real estate market cannot succeed without the production of wealth of producing businesses. Investments in producing businesses are what build the economy. Those are the kinds of investments we need to be making more of.