The Investment Fairytale.
The first and oldest fable is that the trolls (they do not see themselves as such, natch) are the engines of the economy; no, they are more: they are its heart, soul, and its very brain. That is because they are “investors.”
The biggest propaganda coup of the 20th century was convincing the media and the general public to call the speculators on the New York Stock Exchange (NYSE) “investors.” . . . Buying stock on the NYSE is not investing, but rather seeking a return on saving.
On Dec. 31, 2013, the Dow Jones Industrial Average hit a new record high of 16,577. The media cheered this result and proclaimed that happy days are here again. . . .
That day, NYSE market volume was 735 million shares, and another 1.34 billion shares were traded on the NASDAQ. It was a slow day because of the holidays. More than $200 billion changed hands, yet not a penny of all this money went to a corporation for use as productive investment.
—Doug Orr, “The Big Casino.” Dollars & Sense, May/June 2014.
Three Types of “Investment.” There are basically three types of activity that are called investment. All involve committing money in a way that puts it at risk in the hope of gaining more money: using money to get more money. But only one of them results in an increase of real wealth: the production of more or better goods, services or assets.
- Speculation is the most popular because it is gambling, and lots of folks find gambling exciting. Like other forms of gambling, it is a zero-sum game. Nothing is produced, and one person's gain is another's loss.
- The next most popular is troll tolls. You simply acquire income producing property and collect the income. Technically, this is called economic rent. To an economist, rent is income that accrues merely by the possession of valuable property. The purest example is the dividends paid on stock. When you own stock in a company you do nothing for the company, but because you “own” it, it pays you a part of its profits. This is not exciting like speculation, but it is easy. It is a lazy way to get something for nothing.
- The third is the productive sort: real investment. That is money spent on machines and factories, on research and development, and on training of employees. It is money spent in an effort to create something of value. It is neither easy nor exciting, but it is useful. It is the only sort of investment that a sane society would try to encourage.
Unfortunately, when the media talk about “investment,” they usually mean the first, occasionally the second, and almost never the third. The gambling economy is threatening to overwhelm and utterly swamp our real economy, making a few very rich but drowning the rest of us.