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Chicken or the egg? It seems equally intuitive that investment drives the economy. Investment gives companies capital, capital to spend on employees and service
by jaredklewis 9y ago
Chicken or the egg? It seems equally intuitive that investment drives the economy. Investment gives companies capital, capital to spend on employees and services or products from other companies (which in turn spend it on employees or other companies). In this way, money makes it way into the pockets of consumers who then spend it on products and services, and the endless cycle of economic activity continues.
But I'm not an economist and am somewhat skeptical of macro-economics in general, which seems a bit like reading tea leaves.
Even if you if you don't buy into supply side economics, I think "Money doesn't do anyone but the holder any good sitting in an offshore account" is somewhat misleading. Savers and investors, through loans and capital, certainly help someone.
- chromatic 9y agoIt seems equally intuitive that investment drives the economy. The economic principle you're looking for is "velocity of money". If you think of a GDP in terms of a multiplier in how often/fast money circulates, then you can analyze whether investment or spending is more important. The second economic principle to look into after that is "marginal propensity to consume".
- EliRivers 9y agoInvestment gives companies capital The vast majority of money people invest doesn't go into giving companies capital, though. It goes into people selling pieces of companies to each other. The very first time the share was bought, the company got some capital, and the vast majority of money people invest is not going into initial purchases of shares.