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I'm not sure where you're getting a connection to high interest rates. I would expect just the opposite; if people have their desires satisfied and are looking

I'm not sure where you're getting a connection to high interest rates. I would expect just the opposite; if people have their desires satisfied and are looking to invest what's left over then their time preference will be lower (more willing to wait) and money should be easier to get (lower interest rates on loans).

SketchySeaBeast 7y ago
I was thinking the real-world version of keeping it under the mattress would be in a savings account, which would be encouraged by high interest rates. I'm confused as to why investing (I assume in the stock market) "improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone" - that money we invest in buying stocks, after the stock is initially bought from the business, is just shuffling chips around a table, it doesn't seem to be doing anything for anyone. Am I off base? How does a company see a direct benefit from already sold stocks?
- nybble41 7y ago
  Putting money in a savings account is still investing, which is why you're earning interest. What I meant by "stuffing the money in a mattress" was actually taking it out of circulation. I didn't meant to imply that this would be more profitable than investing, just that it would still be a net benefit to others since you're not using that money to bid up prices on things they might want to buy. Same amount produced plus less money in circulation equals lower average prices. > How does a company see a direct benefit from already sold stocks? Normally when you buy shares in the stock market, other than from an IPO or secondary public offering, the company doesn't directly benefit from that trade. The company received its benefit up front when it sold the shares. Of course no one would have bought the shares if they didn't expect to be able to profit from them, either by selling to another investor or through dividends, so the fact that a market will exist is critical to any company looking to raise capital by issuing shares to the public. A high stock price is also beneficial to any company looking to raise funds through a secondary public offering, and may translate into actual revenue for capital investment if the company holds some of its equity in reserve. What I really had in mind, however, was not buying existing shares from other investors in the stock market but rather venture capital, IPOs, private equity, and the purchase of corporate bonds. In each of these cases the investment directly injects money into the company where it can be put to work enhancing productivity.

SketchySeaBeast 7y ago

I was thinking the real-world version of keeping it under the mattress would be in a savings account, which would be encouraged by high interest rates. I'm confused as to why investing (I assume in the stock market) "improves the productivity of labor, allows more goods to be produced at lower cost, and ultimately benefits everyone" - that money we invest in buying stocks, after the stock is initially bought from the business, is just shuffling chips around a table, it doesn't seem to be doing anything for anyone. Am I off base? How does a company see a direct benefit from already sold stocks?

nybble41 7y ago
Putting money in a savings account is still investing, which is why you're earning interest. What I meant by "stuffing the money in a mattress" was actually taking it out of circulation. I didn't meant to imply that this would be more profitable than investing, just that it would still be a net benefit to others since you're not using that money to bid up prices on things they might want to buy. Same amount produced plus less money in circulation equals lower average prices. > How does a company see a direct benefit from already sold stocks? Normally when you buy shares in the stock market, other than from an IPO or secondary public offering, the company doesn't directly benefit from that trade. The company received its benefit up front when it sold the shares. Of course no one would have bought the shares if they didn't expect to be able to profit from them, either by selling to another investor or through dividends, so the fact that a market will exist is critical to any company looking to raise capital by issuing shares to the public. A high stock price is also beneficial to any company looking to raise funds through a secondary public offering, and may translate into actual revenue for capital investment if the company holds some of its equity in reserve. What I really had in mind, however, was not buying existing shares from other investors in the stock market but rather venture capital, IPOs, private equity, and the purchase of corporate bonds. In each of these cases the investment directly injects money into the company where it can be put to work enhancing productivity.