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How exactly does money "passively" deployed into pre-existing securities become "extractive"? If I invest some money in a passive index fund, what does that ha

How exactly does money "passively" deployed into pre-existing securities become "extractive"? If I invest some money in a passive index fund, what does that have to do with market cornering / scarcity generation / etc? What are "non-extractive" ways of investing money, aside from starting new companies?

helen___keller 7y ago
Passive investments like index funds allow you to buy some ownership of a productive investment vehicle (public companies usually, or rental properties through REITs), an in exchange you collect rent on that vehicle in proportion to earnings and your share of ownership, for all eternity. It's extractive in that you are literally bidding up ownership of a rent-seeking vehicle, rather than creating any new value at all. In theory you might say bidding up asset values creates something like "potential energy" for productive investment: if an entrepreneur (or venture capitalist to-be) wants to liquidate stock to use as capital for starting a new company, inflated asset values would then contribute to a larger pool of capital for that entrepreneur. Still, I argue that's a stretch. The existence of extractive investment vehicles are the main motivation for capital to invest in new value, yet their continued existence for all eternity leads to an entrenchment of wealth that may threaten the entire system. This is what Marx is all about (although he seems to presuppose a revolution is the end result, rather than say a wealth tax like Bernie / Liz would promote).
ak217 7y ago
It's extractive to the extent the economy at large is extractive. Your index fund invests indiscriminately in profit-seeking enterprises proportionately to their size. A lot of profit-making economic activity is dependent on things like cornering a market for trucks through the chicken tax, scarcity generation in housing through restrictive zoning, etc. etc. - government regulations which, for better or for worse, interfere with the "free market". Want to invest non-extractively? Invest in companies that you truly believe provide value without explicitly engaging in such activities. Most index investing is incompatible with such a thesis. Some index funds try, for example VFTAX.

helen___keller 7y ago

Passive investments like index funds allow you to buy some ownership of a productive investment vehicle (public companies usually, or rental properties through REITs), an in exchange you collect rent on that vehicle in proportion to earnings and your share of ownership, for all eternity. It's extractive in that you are literally bidding up ownership of a rent-seeking vehicle, rather than creating any new value at all. In theory you might say bidding up asset values creates something like "potential energy" for productive investment: if an entrepreneur (or venture capitalist to-be) wants to liquidate stock to use as capital for starting a new company, inflated asset values would then contribute to a larger pool of capital for that entrepreneur. Still, I argue that's a stretch. The existence of extractive investment vehicles are the main motivation for capital to invest in new value, yet their continued existence for all eternity leads to an entrenchment of wealth that may threaten the entire system. This is what Marx is all about (although he seems to presuppose a revolution is the end result, rather than say a wealth tax like Bernie / Liz would promote).

ak217 7y ago

It's extractive to the extent the economy at large is extractive. Your index fund invests indiscriminately in profit-seeking enterprises proportionately to their size. A lot of profit-making economic activity is dependent on things like cornering a market for trucks through the chicken tax, scarcity generation in housing through restrictive zoning, etc. etc. - government regulations which, for better or for worse, interfere with the "free market". Want to invest non-extractively? Invest in companies that you truly believe provide value without explicitly engaging in such activities. Most index investing is incompatible with such a thesis. Some index funds try, for example VFTAX.