> If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant.
> Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation of reality.
What investment markets provide is a way for firms to increase their productivity. Think of the farmer who has a bucket, a stream, and an acre of land. The economic pie gets a lot bigger if the farmer can secure an irrigation system.
The farmer can solicit the banker in town for a loan, or he can enter a debt offering into large market or exchange. Investors are more likely to invest if they know that they can exit their investment freely. i.e. there is liquidity, so they can sell their investment as their own needs dictate.
Comments
> If there are n people in the market moving money around in a closed system then the combined wealth of those n people is constant.
> Admittedly this relies on money not being created or destroyed, which may cause the model to be a poor approximation of reality.
What investment markets provide is a way for firms to increase their productivity. Think of the farmer who has a bucket, a stream, and an acre of land. The economic pie gets a lot bigger if the farmer can secure an irrigation system.
The farmer can solicit the banker in town for a loan, or he can enter a debt offering into large market or exchange. Investors are more likely to invest if they know that they can exit their investment freely. i.e. there is liquidity, so they can sell their investment as their own needs dictate.